If you’ve never invested your money, good news: investing is not just for the rich. Anyone can invest, as long as they have the right plan in place. Generally considered a risky business, the stock market is nevertheless one of the most common ways to make a profit from investing. Here are some basic rules to get you started.
What does investing in stock market mean?
Investing in the stock market is defined as the process of putting money into a financial instrument. The funds that you invest in stocks typically give you good returns over a period of time. Stocks are still volatile investments that depend on the market sentiment. However, they have the potential to give you really fruitful returns given that you invest for the long term. The areas of investment are many and varied: gold, real estate, art, historical objects, etc. However, the majority of investors turn to financial instruments such as stocks, bonds, currencies, or investment funds, which offer better liquidity. Investing in the stock market also means exploiting the various financial products (e.g. ETFs or CFDs) available to vary one’s portfolio while maximizing profits.
Why is it interesting to invest in stock markets?
Investing in the stock market is not only to get involved in the economy, to become an active member of it, and to participate in the development of companies, but it is especially to take advantage of the very attractive return that this asset class provides over the long term. Investing in the stock market has many benefits such as the ability to protect your wealth from inflation, as the returns often significantly outpace the rate of inflation, but also the ability to earn regular passive income from dividends.
Another undeniable advantage of investing is that the starting amount does not matter. You can start with a small amount, such as $100, and then develop your skills and learn what works best for you in the short term. You can then apply this knowledge to larger amounts as you progress in your investments.
What to do before you start investing?
In order to make a profit, you need to follow some rules. So, before you start, make sure your regular expenses are taken care of and that you have enough money set aside for the unexpected. Then follow these points:
Determine your goals and budget
It is crucial to establish the total amount you wish to invest as well as your goals and motivations. Defining your goals will help you determine the length of your investment and the level of risk you will need to take. The reasons can be as simple as “to grow my money despite inflation”, “to retire earlier”, or “to receive regular dividends”.
Define the risk level
Usually, the return you can expect from an investment depends on the level of risk. The higher the risk, the higher the potential gains and vice versa for losses. Assessing the level of risk you are willing (and able) to take will help you determine the mix of assets you need to invest in to achieve your goal. The choice is yours, but regardless of the level of risk you accept, it is recommended to build a diversified portfolio.
Diversify the investment
Once you have decided on an investment method (bank, brokerage, financial advisor, robo-advisor …) you can start building a diversified portfolio. A mixed portfolio gathers different securities spread over several asset classes and in different sectors and regions.
Diversification doesn’t prevent you from losing money, but it limits it and reduces the overall risk of your portfolio.
Monitor and adapt
Once you have your portfolio in place, diversified, and starting to work for you, you need to make sure that it is profitable regardless of what happens in the markets. Check your portfolio, analyze the returns of your various investments and regularly review the situation.