Before you start your investment and passive income journey, these are the three things you should have. You will know you’re ready to begin your investment when you have these things already. Preparation always gives successful results.
1. Basic Knowledge
As they say, knowledge is power. Before you get involved with the stock market, you need to know first the basic concept of the stock market’s WHAT, WHY, and HOW.
- What is a Stock Market?
- Why do people invest in the stock market?
- How to trade in the stock market?
What is a Stock Market?
In layman’s term, a stock market is a place or a platform where people buy and sell stocks. The stock market is also known as stock exchange; they both mean the same thing. Examples of stock markets in the world include the New York Stock Exchange, Nasdaq, Tokyo Stock Exchange, London Stock Exchange, and many more.
Why do people invest in the stock market?
1. To own shares of stock
If you buy shares of stock from a company listed in the stock exchange, you will become a shareholder of that company. It means you will become a co-owner of that company because a stock is an equity that represents your proportionate ownership in the company.
2. To earn money
There are two ways to earn money from stocks: when you close a profitable trade and when you receive dividends in the form of cash or stocks.
3. To learn financial skills
Investing and trading in the stock market will teach every person to be financially independent. As you invest and as you experience many months of trading, you will find yourself expanding your financial literacy. Soon you will find yourself spending more time on Bloomberg, Wall Street Journal, Yahoo Finance, and DailyPik than Facebook or Netflix.
How to trade in the stock market?
1. Open a legit brokerage account
Open an online brokerage account. It’s a platform to trade in the stock market. Find any broker that is accredited by the SEC (Securities and Exchange Commission) in your country. Select the broker that suits your needs as an investor or the one that can be quickly linked to your bank account.
Then, fund your brokerage account with money. That will be your capital to start building your stock investments.
2. Evaluate your goal as an investor
Every investor has different investment objectives, knowledge, strategies, and risk tolerance. Why are you investing? Is it to grow your capital for the long term with moderate risk? Or do you want to do short-term trading?
Trade and learn your strategies to achieve your goals.
3. Buy Shares of Stocks
We buy shares or enter a long position when we believe a company’s stock price will increase in value over time. Fundamental analysis helps beginner investors choose stocks with growth potential.
Whether your investment horizon is long or short-term, if you find any company that aligns with your goals and you’re confident about it, you can start to buy shares of that company and become a stockholder.
4. Sell Shares of Stocks
Remember your goal or target? Once your stock reaches your target profit or target price, it’s time to sell your shares to realize your profit.
The stock market is very volatile, and prices fluctuate very quickly. Don’t be greedy and let go of your shares once they reach your target profit. Otherwise, tolerate the consequences.
Trading is a rinse-and-repeat process. You create a goal, then buy stocks, then sell for profit. Buy and sell again as your capital grows over time.
Factors Affecting the Movement of the Stock Market
Different factors affect the movement of stocks such as company earnings, analysts’ target prices, market trends, stock market news, geopolitical drivers, economic status, and unexpected events such as pandemic threats and wars.
Investment Tip:
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
– Warren Buffett (Chairman and CEO of Berkshire Hathaway)
2. Money
The second thing you should have before investing and trading in the stock market is money. Your money is your capital that you are going to grow by trading.
Make sure you only invest the money you are comfortable to lose. That means it is absolutely fine with you to lose that money because of risks. Despite of risks, your goal is to grow your MONEY.
Never invest your total savings in the stock market nor your whole retirement fund. Only invest around 10% to 20% of your monthly income or the money you won’t be needing in times of emergency.
Investment Tip:
“In the financial world, the higher the risk, the higher the reward. Stocks are way more profitable than regular time deposits and money market funds. But be careful; stocks are very risky.”
– Fehl Dungo (Founder of Dailypik)
3. Strategy
Successful investment requires an effective strategy. Your strategy will be based on your goal as an investor. If your goal is to invest for long term, a great strategy is buying shares of high-quality stocks or blue-chip stocks regularly.
Another strategy for beginners who want to invest for long term is dollar-cost averaging technique, which is a time-tested, proven strategy.
Short term trading is a bit challenging for beginners because it requires a strong stomach and well-disciplined skills.
Investment Tip:
“People who invest make money for themselves; people who speculate make money for their brokers.”
– Benjamin Graham (The Intelligent Investor)
We created a video showing the entire guides on our YouTube channel. You can also watch it below.
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