How To Invest In Stocks And Shares For Beginners – Investing in the stock market is one of the best ways to grow your savings in the long run. If you’re just starting out, there seems to be a lot to learn before buying stocks. But the reality is much simpler. One of the most important factors is initiation. This guide covers everything you need to know to start investing in the stock market. Before you dive in, it’s important to remember that when you invest, your capital is at risk. This means that the value of your investment can go down as well as up, so you may get back less than what you originally invested. Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time frame, should inform the mix of assets you choose for your portfolio. Our resource center for investing in the stock market can help you clarify the mix a bit, and our guide to investing in stocks is a great start to making your investment decisions. If you are still not sure how to choose your investments, contact a qualified financial advisor to develop your own investment strategy.
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How To Invest In Stocks And Shares For Beginners
Keeping money in the bank is one way to save, but it’s not the best option when it comes to growing your savings.
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Often, prices will rise (in economic terms, this is inflation). In the short term this isn’t really a problem – £1,000 today will be close to £1,000 tomorrow or even next month.
This makes the cash a great option for emergency savings or money you need quickly. But over a long period of time, your cash savings start to lose value.
Disclaimer: The table shows how inflation can reduce savings over the years. This table is for illustrative purposes only and does not use actual inflation rates.
Investing is about growing your wealth over the long term. The goal is to earn a return above inflation so that your real wealth grows and your purchasing power increases in the future.
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Investing in the stock market has historically been a great way to do this. If you have a long-term approach, it is likely to continue.
When you buy a share of a company, you become the owner of that company. And as an owner, you will participate in the ups and downs of the business, which will cause stocks to go up and down over time.
Some companies pay out a portion of their profits (called dividends) to investors, another way to share in the company’s success.
Investors have historically been offered a higher rate of return on their money and the opportunity to grow their savings instead of owning companies and taking on the risk of potential upside in performance.
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Before we get stuck into how to invest, it’s important to understand why the stock market can be a good place for your savings.
In the long run, the economy tends to grow. They grow because of population (in many places) and productivity (our ability to produce more goods and services with the same pair of hands). If economies are growing in the long run, it is reasonable to assume that company profits should generally grow.
Over time, stock prices tend to track underlying earnings growth. And that is if we show you a chart of the stock market, it will go up in the long run.
Do they always get up? No. Stock markets are designed to move on new information – the good, the bad and the good.
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Some people invest money for retirement. Others may have a specific future purchase in mind, or want to beat inflation.
Understanding your goals is important because it helps you decide the basics of investing, such as how much to invest and what to invest.
The easiest way to think about risk is how much money you are willing to lose in exchange for seeing it gain value. The more risk you take, usually the more you stand to lose or gain.
How comfortable you are with risk and how much you’re willing to take on depends on your circumstances and things like:
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If you are investing for the long term, you will be able to take more risk than someone who wants to sell their investments in the near future.
If you don’t have a lot of money to invest or save, you may want to take less risk than someone with millions in the bank.
As we have already discussed, stocks represent ownership of a company and give you an opportunity to participate in the current or future success of the company.
Many large companies have shares that you can buy. This can be anything from global tech names or big banks to popular fashion labels and car brands.
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But it doesn’t have to be just big companies, many smaller companies have stakes as well. Smaller companies tend to attract more adventurous investors, and may be more innovative companies to prove.
But today, few stock brokers give investors access to fractional shares. They are parts of a single stock that you can buy. For example, if a stock is worth $1,000, you can buy half of that stock, or $500.
You don’t have to choose every stock if you don’t want to. With an exchange-traded fund (ETF), you can invest in a combination of stocks or other assets at once.
In the financial world, an index is a group of stocks or other assets that are used in combination to analyze or understand how the market is performing as a whole.
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From a practical point of view, this is much cheaper and faster than buying shares of these 500 companies. It also gives investors a more diversified portfolio, reducing the risk of losing large amounts of money.
The downside to ETFs is that you can’t get the big returns that individual stocks can sometimes. You can still be exposed to market crashes, some of which can have long-term effects on returns.
💡 What is an ETF and how do ETFs work? 📱 See the most popular ETFs you can invest in using the Investment app.
For example, an investment trust might focus on buying stocks in the technology industry. Others have a wider range of stocks and invest in different sectors such as telecommunications, financials and energy.
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As the name suggests, REITs invest in real estate. They are a great way for people to invest money in the real estate market without paying a lot of money to actually buy the property.
REITs also tend to invest in different types of properties, meaning you can be exposed to everything from retail to data centers or digital infrastructure.
You may have heard of IPOs (Initial Public Offerings) and SPACs (Special Purpose Acquisition Companies) before. They are usually one of the most talked about topics that come up when it comes to investing.
This is mostly because, unlike the different types of investments we discussed above, both IPOs and SPACs allow investors to invest in companies entering the stock market. They may not be new companies (although they often are), but they are new investment opportunities.
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IPOs and SPACs work in different ways that we won’t go into here. You can learn more about them in our IPO Guide and SPAC Guide.
The main thing to know about investing in both IPOs and SPACs is that they carry very high risk. This means they are usually not the best option for anyone just starting to invest. If you decide to invest in an IPO, it is best to start with a small amount and gradually increase it over time.
Whether you decide to pick your own stocks or go the ETF or mutual trust route, you need to understand what you’re getting into before you invest.
What does the company do and how does it make money? Which companies does an ETF or investment trust invest in, and are they the companies you expected?
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This doesn’t mean you should set out to build a lean platform, but check that you understand how the business or investment will monetize. If it is an investment, how can it be?
It’s a broad term, but it covers anything that affects a business or other type of investment. What are the factors that can mean it works well and what are they?
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