Tips on how to invest in stocks wisely
In this economic climate, it’s no surprise that many people are investing in stocks and shares to give themselves a chance of making some returns.
Whether you’re hoping to earn a little extra cash while you wait for a healthier paycheck, planning to save to pay for a dream vacation, or you’re simply hoping to make some larger returns in order to fund buying a car or a house, investing in stocks can be an ideal way to do it.
For many, the word “invest” conjures up images of people such as Warren Buffett moving millions of dollars around — but the reality is much different. There is no need for you to be fabulously wealthy in order to enjoy the benefits that investing can bring.
In this article, we’ll take a look at how you can build your own investment portfolio.
How much do I need to get started?
While certain investment schemes and assets will perhaps stipulate minimum and maximum amounts, generally speaking, there’s no lower or upper limit on how much you need to invest.
If you have a large asset or a pool of cash, your options may be larger as you’ll be able to access more asset classes. However, even those with less capital can get involved. Online services such as Betterment help people automate the process of investing, and the site does not have a minimum investment amount.
Opt for safer stocks
As GoBankingRates advises, there are certain stocks that work well if you’re buying stocks for the first time — especially if you don’t know how to invest in stocks. These tend to be known as “safe stocks.” Though it’s important to remember that no stock is in theory 100% safe, there are certain stocks that tend to be seen by analysts as relatively safe bets.
When searching for these options, it’s a good idea to look for positive signs. The company that you go for should have a steady growth trajectory, and they should also have a clear plan for how they’re going to maintain and improve that growth as time goes on.
If you’re looking for the ultimate in stock safety, some investment opportunities such as principal-protected investments guarantee that you’ll always get your initial investment back. Of course, the downside to investing in safer stocks is that they generally do not pay out the sort of high returns that you might expect to receive from a more risky — yet, if it works, more lucrative — stock choice.
That said, a safe stock can provide other financial benefits. Even if the amount that you receive as a return is low, it can often provide some stability and a welcome sense that money will be coming in at the end of the year. For some people, the return may be quite small, but it can be the difference between taking a cheaper vacation or taking a slightly more luxurious one!
Take the plunge!
After assessing all of the options, it’s important to remember that not doing anything is also an option with consequences.
If you opt for a stock that guarantees your original investment, or even if you decide not to invest at all and simply keep your cash sat in the bank, you might think that you’re going for the risk-free option. However, you could be wrong. The power of inflation means that while the number of dollars that you have sat in your savings account might not change, the value of those dollars may well change.
Say that back in 2015, you had $100,000 and you planned to spend exactly that amount of money on everything that you ever wanted to buy. As this handy calculator shows, in 2017, you might have needed $104,072.28 to buy the same amount due to rises in prices.
As a result, it can make sense to guard yourself against the harmful effects of inflation by seeking a stock with a return that makes up for some of the loss in the value of the money. This way, your $100,000 won’t lose value as it languishes in the bank!
In order to take a fully wise decision about investing in stocks, it’s important to also remember that doing nothing can be a risky option. The best way to move forward is to honestly assess all of your options, consider the outcomes of each, and then decide on one.
Ultimately, it’s clear that investing in stocks is an important decision. It requires a little research first in order to find out which option suits you best, but once you’re there, you’ll be well on the road to good financial health.