Once you have decided to invest in the stock market, the next question you will find yourself asking is how to invest in the stock market.
The problem that many newbie investors face is that they have no real understanding of how the stock market works.
If you want to become successful as an investor, you need to know not only the theory behind the stock market investing game, but also the right way to get into stocks.
If you think that investing is risky and there is no way for ordinary people like yourself to profit from the stock market, you are not gonna be rich!
Before you start learning about how to invest in the stock market, there is only one thing that I can tell you…
Investing is NOT complicated AT ALL!
In this article, I’ll help you get started.
- You don’t need to have a lot of money to start investing.
- You don’t need to have a background in finance to start buying stocks.
- All you need to do is to look at investing in a different way.
Once again, investing is NOT risky and complicated – Trust me!
- If you believe that investing is risky, then it will never be safe.
- If you believe that investing is complicated, then it will never be easy to learn.
- If you believe that you cannot get rich by investing in stocks, then you should forget learning about investing.
Now let me help you start your investment journey the right way…
Understand the Today's Stock Market
Before you run out and start investing you need to realize that investing in stocks today is not as easy as before.
Many people mistakenly assume that investing today is similar to gambling, you simply pick something you like, invest your money, and hope that everything works out for the best.
When it comes to investing, people are not even concerned with understanding the stock market today, they simply rely on others to do it for them in the form of brokers.
There is nothing wrong with using broker investment services to pick stocks, but you still need to have some kind of a financial education.
Lack of a financial education is very risky when you are investing in the today’s stock market because you will have no idea if something is a good investment or not.
Not having the financial education simply means that you have to rely on someone else who will tell you the “best” stocks to invest in.
The problem with that is you will never know if they are being honest. If you invest your money like that, you are gambling, not investing!
Right the time you rely on someone who you believe they will help you profit from the stock market, you give them a chance to risk YOUR OWN money.
How can you profit from the stock market if you cannot make an investment decision by yourself?
Keep in mind that the only way to become a winner in the stock market game is to learn how to invest by yourself.
And I am here to teach you how to do that!
Investing Tip #1
Investing is NOT about gambling. Investing is one of the most powerful tools to let your money work hard for you...
"Risk comes from not knowing what you are doing." - Warren Buffett
What Should You Invest in First?
Simple answer - Your education!
One of the most popular questions people have once they have decided to start investing, is "what to invest in first".
In all honesty, by far the most important thing that you should invest in is your own education.
From the view point of an investor, a stock is an asset, and you are also an asset.
The only difference between yourself and other types of assets is that you are an asset that can yield an unlimited return, and nothing will pay off more than investing in yourself.
Investing in your financial education simply means you are teaching yourself how to make money.
- Once you have a fishing rod, you can start fishing.
- Once you have a secret weapon, you can start killing your enemies.
- Once you learn the right investment strategy, you can start making easy money from the stock market.
"The best investment you can make is in yourself." - Warren Buffett
If you want to be successful in the stock market today, you need to learn how to play the stock market.
Educating yourself doesn’t mean going back to college either; you can educate yourself with some online resources, as long as you use credible ones.
If you want to learn a real, practical and reliable method for investing in the stock market, go head and enroll in my investing courses.
More than 250,000 students from 145 countries have been taking my courses so far, and many have shared great success stories…and I believe one day I will hear about yours!
Investing Tip #2
You are the most profitable income producing asset. Therefore investing in your education first...
"An investment in knowledge pays the best interest." - Benjamin Franklin
Always Start With a Plan
Learning how to build wealth in the stock market involves learning about personal financial planning.
- Set your personal financial goals
- Create a spending plan
- Pay off your debts as early as possible
- Treat your personal expenses like business expenses
- Plan your retirement
When creating a financial plan you need to look at what your goals are, so you can plan your investments accordingly.
How you plan to use the stock market will determine how much money you should be investing.
Setting goals is only the first step; you also need to create a spending plan.
If you don’t have a spending plan in place, you will never be able to save up money to begin investing in the stock market.
When creating your spending plan you can see what money is going where, so you can accurately determine how much money you can save and invest each month.
What kind of spending plan you create will depend on where you are currently at financially in your life.
If you are in a lot of debts, you will need to save heavily to pay off your debts as early as possible before you start investing.
4 Simple Steps to Cut Your Spending
Below are 4 steps you can follow to cut your spending in order to save more to pay off your debts:
- Study about your monthly expenses to find out where your money is going to and where you can cut your expenses
- Do not spend your money on satisfying your short-term needs
- Think twice before you buy something to make sure that you will only spend on buying important stuffs
- Plan your purchases and look for a huge discount
One more important thing that you need to do is trying to treat your living expenses like business expenses.
So, what do I mean by that?
Let’s consider a case when you are a business man. We have a simple formula for calculating a company’s net income like this:
- Net Profit = Revenues – Expenses
The above formula shows the relationship between a company’s expenses and its net profit.
In essence, if you can manage to cut operating expenses, your business will be able to generate more profit.
That’s to say, cutting expenses simply means you will make more income.
Once you come up with a thorough spending plan, you will see how easy it is to save more money, and most importantly, to pay off your debt.
After you settle your debt, it’s time to consider investing your money in the stock market.
You should come up with both long-term and short-term goals:
Determine how much money you want to have in your bank account for living your retirement dreams
Determine how much income you need to generate in order to cover your monthly expenses
Having a goal will set you on the right track to become financially successful.
It’s always better if you know exactly what your goals are as well as understand how to reach closer to those exciting goals.
How You Can Become Rich with Stocks
You can use a compound interest calculator from thecalculatorsite.com to calculate the compounded returns of your investments.
Use this tool to set your long-term financial goals:
- Determine how much money you will start investing with
- Determine your monthly deposits
- Use the calculator to estimate your compounded returns
- You decide to start investing $1,000
- Every month you decide to make an additional investment of $300
- Assume that you are able to achieve an affordable 12% annual return from the stock market
- Your investing period is 35 years
Now let's see the miracle of the compound interest...
Compound Interest Calculator - Credit Thecalculatorsite.com
If you want to have $1,000,000 to live your retirement dreams, the investment plan is simple.
A simple calculation shows that…
- If you start investing with only $1,000 and then you save and invest an affordable amount of $300 a month, with an affordable 12% annual return from the stock market, your investment will turn into $70,316 in 10 years, or $285,604 in 20 years, or $1,706,049 in 35 years – thanks to the power of compound interest.
This simply means that all of you will retire rich if you start investing your money today!
As you can see from the figure above, you only need to invest $127,000 in 35 years or just $300 a month, your investment will turn into more than a million dollar!
No matter where you are in life though, the key to investing is simple.
- The more money you save to invest, the faster you will achieve your financial goals.
And the only way to achieve those goals is to follow through with the investment plan you came up with.
Investing Tip #3
Always determine your financial goals before you start investing. All of us will be rich or extremely rich if we start investing today...
"A goal without a plan is just a wish." - Antoine de Saint-Exupéry
Build a Diversified Investment Portfolio
In order to build a portfolio, you are going to need to take certain factors into consideration.
You will need to think about...
- How much money you have to invest each month
- What your future capital needs are going to be
- How old you currently are
- How long you have to grow your investments
Looking at this information allows you to pick the investment strategy that is going to work best for you.
When building your portfolio, you also need to think about risk and determine your risk tolerance, such as how much of a risk you are willing to take with your money.
With portfolios you can either go conservative or aggressive, depending on how big of a risk you want to take.
In either case, you will always need to make sure that you will build a portfolio that includes different types of investments.
This is important because a diversified portfolio will help you spread the risk and often give you the best returns.
How to Build Your Own Investment Portfolio
Below is a list of essential types of investments that you will need to consider adding to your investment portfolio:
- Exchange Traded Funds (ETFs): this type of investment will bring you a stable return, and be the best option for you to build your long-term wealth.
- Value stocks: this type of investment is essential to help you grow your investment portfolio faster, as well as bring you a very good return.
- Income stocks: this type of investment is the best source for generating passive income online.
ETFs will offer a stable long-term return, value stocks will help you grow your portfolio much faster, and income stocks will bring you an amazing stream of passive income to cover your monthly expenses – Now you have a robust investment portfolio.
As you can see, these types of investments are worth being added to your investment portfolio.
To fully diversify your portfolio you will want to invest in both short-term and long-term investments.
Short-term investments provide access to your return within one or two years, while long-term investments can take up to 30 years to fully realize your return.
While short-term investments are beneficial, it is wise to invest majority of your funds into long-term investments as they often offer a better return.
- You invest within 1-2 years
- You will allegedly take higher risks
- You can possibly generate higher returns in case you master your technical analysis skills
- You will normally have to pay more capital gains taxes
- Invest a small proportion of your money in short-term investments to maximize your returns
- You invest up to 20-30 years
- You will allegedly take lower risks
- You can possibly generate stable returns by just buying and holding your investments
- You will normally pay a lower capital gains tax
- Invest a large proportion of your money in long-term investments to generate stable returns
Even though you have built what you consider the perfect portfolio, your job is not done.
Once your portfolio is built you need to start looking into investment analysis and portfolio management.
By analyzing your portfolio every so often, you can make sure your investments are still the best choice, and most importantly, you can easily make changes before it’s too late.
Now let’s go into more detail about each type of investment we have mentioned above.
How to Invest in Exchange Traded Funds
First of all, let’s talk about Exchanged Traded Funds.
This is my favorite type of investment and the fact is that ETFs account for the largest proportion of my investment portfolio.
Although you may hear a lot about Exchange Traded Funds or ETFs, chances are you haven't understood clearly this type of fund as well as how it actually works.
In very simple terms, you can understand that an ETF, like a mutual fund, is simply a managed portfolio that are designed to track a particular index or market.
ETFs are very powerful because they can track the overall performance of a stock market index, a stock market sector, or even a bond or real estate market.
With an ETF, their value is tied to the index they are tracking, so if the index the ETF is tracking goes up, the value of the ETF goes up as well.
When you buy a share of an ETF, this simply means that you are purchasing part of a diversified portfolio put together by companies like Vanguard and iShares.
And this also means that when you invest in ETFs, your money is diversified within a single investment.
Another thing that makes me interested in investing in ETFs is how easy they are to purchase, and to make things even better, these investments can be traded like stocks.
All you need to start investing in ETFs is an Internet connection and a trading account from some online stock brokers like TD Ameritrade and InteractiveBrokers.
Once you have opened your trading account, you are all set to start making money from your sweet home.
How to Invest in Value Stocks
Value stocks are another solid option when it comes to investing. They offer a very good return in case you know how to trade them.
For you beginners out there, value stocks are actual stocks but they are what investors refer to as being undervalued.
To be labeled as a value stock, investors have looked at the company’s fundamentals and have determined that the stock is actively trading at a price which is below its intrinsic value.
The first step to value investing is finding value socks based on specific criteria.
Bear in mind that a value stock should be priced at least 25% below the company’s intrinsic value.
There are two ways to determine if the stock is undervalued:
- Use a PEG Ratio: If a stock has its PEG Ratio lower than 1.0, this means that stock is undervalued or cheap to buy. And vice versa, if a stock has its PEG Ratio higher than 1.0, this means it’s overvalued or expensive to buy.
- Update: A better version of the PEG ratio is a PEGY ratio. PEGY stands for Price Earnings to Growth and Dividend Yield. You can learn more about the PEGY ratio here.
- Calculate Intrinsic Value: The most well-known method for calculating the intrinsic value of a stock is using the Discounted Free Cash Flow Model. This method requires an advanced skill in financial analysis. However, it’s not too difficult to come by.
Value investing is the ideal choice for investors who are looking for a real “workable” investment method.
Warren Buffet is the most successful and well-known value investor in our lifetime, but he is not the only one who has seen success with this old investing style.
The greatest thing about value investing is that it is the easiest way to profit from the stock market.
Investors who opt for value stocks have a better chance of succeeding in the stock market than those who focus on so-called “high-risk & high-return” investments.
How to Invest in Income Stocks
Income stocks are another ideal investment option for all fellow investors who are interested in building your own income machine.
When you invest in an income stock, you will be eligible for receiving a payout from that company usually in the form of cash. This payout is normally known as a dividend or a cash distribution.
Investing in income stocks is very simple.
You just need to follow some established criteria to pick a high earnings potential stock, and then collect the money earned from your stock.
Below are a list of income stocks that you can consider adding to your investment portfolio:
- Dividend Stocks: This is the most well-known type of income stocks that many investors are interested in. Considering to invest in dividend stocks is a must because they will be your main stream of passive income. When you invest in a dividend-paying company, you will be eligible for receiving a cash dividend paid out by that company.
- Real Estate Investment Trusts (REITs): This is the second most popular type of income stocks. In very simple terms, you can understand that REITs are simply a type of company that owns a real estate portfolio which include various types of properties. When you invest in a REIT, this simply means you are buying a part of this portfolio, and you will be eligible for receiving a payout which is similar to a dividend payout.
- Income ETFs: This is a special type of Exchange Traded Funds (ETFs). Income ETFs are ETFs that can yield a high return in terms of cash distribution. As you’ve learned, ETFs are designed to track a particular index, sector or market. That’s to say, ETFs can be used to track the overall performance of a real estate market or a list of high-yield dividend stocks. When you buy an income ETF, this simply means you are buying a diversified fund that includes a variety of high-yield investments.
In short, if you are a lazy investor and you don’t want to spend too much time trading the market, go ahead and invest in income stocks.
The next thing that you will need to consider is your investment approach.
There are two investment approaches that you can use to examine a stock, to see if it has the potential to go up in price – Fundamental Analysis and Technical Analysis.
Let me explain them so you can understand clearly how they can help you make your investment decisions.
How to Use Fundamental Analysis
Fundamental analysis is the most commonly used investment approach when it comes to investing.
If you talk to others involved in the stock market, you will hear that fundamental analysis is the most logical approach to investing because of the way it works.
How fundamental analysis works is simple.
By applying the fundamental analysis, you will analyze the financial statements of a company that you are investing in to find out whether or not it's a financially strong company.
In short, you apply the fundamental analysis to find "value" in a company.
"Price is what you pay, value is what you get." - Warren Buffett
So, what are financial statements?
To put it simply, you can understand that a financial statement is simply a document that summarizes all financial information related to your company.
There are 4 widely used types of financial statements:
- Balance Sheet or a Statement of Financial Position is a document that summarizes all financial information regarding your company’s assets, liabilities (debts), and equity (capital).
- Income Statement is a document that summarizes all financial information related to your company’s revenues, expenses, and net profits.
- Cash Flow Statement or a Statement of Cash Flow is a document that shows how the cash comes into and goes out of the business that you are looking to invest in.
- Retained Earnings Statement or a Statement of Changes in Equity is a document that summarizes all information related to changes in owners’ equity or capital, and dividend payments.
- Besides the above financial statements, as an investor, you also want to look into the Notes to Financial Statements to understand clearly all figures shown on the above financial statements.
So, where do you find financial statements of the company that you are looking to invest in?
- You can go to that company’s website to download the latest annual report. All of the above financial statements are included in that report.
- Another way which is much easier to find out those financial statements is to use financial data from some investment research sites, such as Yahoo Finance, Morning Star, Zacks and so on.
When looking at the various financial statements of the business you are going to be looking at things like assets, liabilities, revenues, expenses, as well as many other aspects of the company as they relate to their finances.
When looking at this information the goal is to get an idea about how the company will perform in the future, so you can decide if they are a good investment or not.
That’s all the fundamental analysis is about.
How to Use Technical Analysis
Now let me explain what the technical analysis is and how it works so you can see the difference between these types of investment approaches.
While the fundamental analysis looks at information that gives you a real picture in regards to how the company is doing financially, the technical analysis is more of an emotional approach, as you are not looking at the company’s current information.
How a technical analysis works is that you will look at past statistics to gain an idea on how the stock might do in the future.
- You don’t need to analyse the fundamentals of the company that you want to invest in.
- You don’t need to read its annual reports, financial statements or dividend policies.
- You don’t need to estimate the intrinsic value of that company’s stock.
- You don’t even need to care about what the company is doing.
All you need to do is to focus on analyzing the emotions of the market, so you make your investment decisions based on what the chart tells you.
By applying the technical analysis, you will look at the past prices of the stock, as well as some technical indicators, such as Volume, MACD, RSI, and so on, to see if they can spot a pattern to the stock’s performance to see how the stock might perform in the future.
That sounds interesting, right?
There is only one rule that you need to follow when using the technical analysis.
The No.1 trading rule: Let your emotion serve you, not enslave you!
The fact is that many beginner investors have started making their first investments by using this emotional approach.
And that’s also the reason why many investors have failed when they first started investing in the stock market.
The reason is simple.
They haven’t educated themselves enough before using the technical analysis, hence they ended up losing money.
Please, don’t get me wrong – I’m not saying that you cannot use the technical analysis to make investment decisions – You can!
But, before you do, you need to make sure that you master some technical analysis techniques, such as chart pattern analysis, candlestick analysis, etc.
And one more important thing that you should take into consideration…Don’t try to use ALL technical trading tools.
You should only focus on using techniques that WORK FOR YOU.
What is the Best Way to Get Into Stocks?
So which method should we use to pick stocks?
As a new investor you are probably wondering whether a fundamental analysis or a technical analysis is the best approach.
The honest answer is there is no better approach; both investing approaches have their uses.
In Case You Only Use Fundamental Analysis
You find a company you like the look of and your Fundamental Analysis of that company indicates that its stock is a great buy right now.
But if you don’t also consider the current emotional state of the stock market, you might end up buying those shares at the wrong time.
If market pessimism starts to cause a downtrend in prices right around the time you buy your shares, you could end up having to watch the low price of your stock fall even lower after you buy it.
In Case You Only Use Technical Analysis
You only focus on analyzing the emotions of the market, so you make your investment decisions based on what the chart tells you.
You will look at some technical indicators like Moving Averages, MACD, and RSI to determine if the stock is worth buying right now.
By doing this, you may end up making a wrong investment in a lousy business since you have no idea about that company's fundamentals.
Sometimes the best approach to consistently making money in the stock market is to apply both short-term and long-term thinking at the same time.
That’s to say, when you are investing in the stock market, you should apply both investing approaches in helping you decide what stocks to invest in.
Utilizing both Fundamental and Technical analyses, you can consider the value of a stock based on both its real worth, and on its current emotional drivers.
The logical approach will help you find fundamentally strong businesses, and the emotional approach will tell you when is the best time to get in the market.
So, which investment approach should you learn first?
Although you should use both approaches, you will want to focus your attention on the fundamental analysis first.
The reason for this is that the fundamental analysis is much easier to learn, and most importantly, it will be much easier to invest your money when you understand the business that you are looking to invest in.
Once you have mastered that technique then you can start focusing on learning the technical analysis.
Investing Tip #4
Use fundamental analysis to find the right business, then use technical analysis to get in the market at the right time.
"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham
How to Start Buying Stocks Online
The next thing that you need to consider is how to buy stocks.
One of the greatest things about investing in the stock market is that regardless of where you live, you can easily buy, sell, or even trade your stocks from your own home.
All you need to start investing online is a stable Internet connection and a trading account with an online stock broker, which there are plenty to choose from.
Before creating an account make sure you have researched the company thoroughly.
Different brokers offer different things, some are very hands on in helping you build your portfolio, while others sit back and just charge you fees.
So, which online stock broker should you use?
As a beginner, you may consider opening a trading account from some online brokers like TD Ameritrade (thinkorswim), and InteractiveBrokers.
They are the most reliable and legit stock brokers that you can trust and keep your money there.
Investing Tip #5
Be aware of cheap brokers, they aren't cheap!
Where is the Best Place to Invest Your Money?
One more important thing that you need to do is figuring out where to buy stocks.
Should you invest in your local stock market or should you invest elsewhere?
In all honesty, the best place to invest money is in the US stock market.
The reason is simple – the US stock markets offer a distinct advantage to investors looking to maximize their profits.
- High volume and liquidity: There are many investors like you pumping their money into the US stock markets. That results in high volume and an extraordinary level of liquidity. That’s to say, the US stock markets have a very strong buying and selling power.
- Free access to financial data: Whether you want to study about great companies that you are looking to invest in, or you want to figure out if those companies will grow in the future, there are tools to help you. Most of those tools are free-of-charge and straightforward to use.
- Foreign investors’ benefits: If you are a non-US resident or a foreign investor, you will be exempt from the US Capital Gain tax. The US government will charge you nothing for the profit you make from your shares increasing in price.
As you can see that investing in the US stock market is very lucrative.
So, how can you buy shares from the US stock market if you are a foreign investor?
That’s very simple.
You just need to open a trading account from some online US stock brokers and then you can easily buy and sell shares from the US stock market.
One thing that I want to tell you is that no matter where you are living now, you should consider investing in the US stock market because of its gigantic advantages.
Investing Tip #6
No matter where you live, the US stock market is the best place to invest your money in...
You Can Do It!
So, that’s all - A detailed 6000-word guide to investing online for dummies and beginners...
If you are serious about getting into stocks, the best thing that you can do for yourself now is to educate yourself.
Take some time and do some more research.
Find out everything you can about the types of stocks I have mentioned here, as well as the investing approaches I have discussed.
The more you know the easier investing will be.
If you want to learn more and accelerate your learning, go ahead and enroll in my investing courses.
I’m not going to cram into your head lots of financial (boring) stuffs. I’ll only teach you what you actually need to learn to become a successful investor.
Thank you so much for reading!