Starting investing in stocks can be a difficult task for a beginner. There are just so many things to think about and take care of that first time investors feel a little lost.
The questions that accompany investing in stocks can be broken down into operational issues like opening a brokerage account, frequency of trading, costs of trading etc. and then the investment philosophy itself. Your investment philosophy is has more to do with whether you are a value investor, growth investor, long term investor, short term trader etc.
For this post let’s look at the operational aspects and see what are the things that you need to take care of.
1. Mock trading: You really don’t want to jump into trading and investing with your real money up front. There are several websites that allow you to simulate trading with fake money. If you have never invested then this is a good way to start. www.investopedia.com has an excellent simulator that you can use.This will also give you time to get your investment technique in order and read up on the topic and get familiarized with it.
2. Opening a brokerage account: After you have fiddled around with fake money for a while you will need to open a brokerage account to get started with real money. A brokerage account is an account which lets you buy and sell stocks, mutual funds, ETFs and other assets. There are various types of brokerage accounts and they come with different type of fees, so you need to go through their terms and look for annoying little things like no activity fee and avoid such brokerages.
3. Start investing: Once you have a brokerage account and have funded it with money, you can start investing. Begin by putting in as little money as possible and get a feel of how the whole thing works. Look at the numbers that analysts talk about like EPS, P/E etc and read up on stuff like financial diversification, asset allocation, investing ideas from people like Warren Buffet and understand the concepts.
Don’t trade too frequently because this will jack up your costs considerably and make it very difficult for you to make any profits. Once you have the infrastructure set up for buying and selling stocks it is time to tune your investment strategy and develop a philosophy that will work for you.