How to Invest in Equities
Investing in equities simply means that you are buying the individual shares of a company---stocks---in the hope that the company does well and the value of your investment grows. Direct investment in an individual company's stock is riskier than investing in other asset classes such as bonds or funds. Individuals have access to company stocks through the markets on which they trade, and becoming an investor is far easier than it once was thanks to online brokerages and real-time trades.
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Instructions
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Learn about the stock market. You can't be a stock market genius until you understand the basics. The big book stores have shelf after shelf of investing books, but choose one that gives you an underlying understanding of how things work rather than one that favors a certain investment strategy.
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Create a serious evaluation of your finances. Try using personal accounting software and include every asset and liability. You must have a firm grasp of your own finances before you risk money investing in equities.
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Complete a risk tolerance worksheet. These are often part of any fully featured online brokerage account you'll sign up for. They contain a series of questions designed to help you with asset allocation, that is, how much you should be investing in equities versus bonds, funds or tangibles.
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Practice. Google's finance section lets you set up different portfolios, buy and sell equities and track your progress. All you need is a Gmail account. Most online brokerage sites have a similar feature you can use after you sign up. It's important that you get used to the surprises, the emotions and the risk involved in trading equities. It allows you to make a plan then see that plan go kaput before your eyes. There is no greater teaching tool than losing all of your fake money.
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Open an online account. Many online houses don't require you to fund the account right away. You can get set up and take a look around before you commit any money. Choose one that offers low to reasonable fees. Super cut-rate sites will save you money on trades, but they are pretty austere compared to the big boys. Target a few that are in the middle of the price range for equities trades, and balance the benefit of extra features against the need to keep the fees low.
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Study. Once you've seen how quickly things can change by practicing with a free portfolio tool like the one at Google, you'll understand that a strong investment strategy begins with complete and thorough research. Try starting slow and targeting companies that are either in a sector with which you are familiar, or at least one in which you have some interest. If your sell cars in your day job, but you're really a geek at heart and subscribe to tech magazines, start researching companies in the technology sector.
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Start with a strategy and stay with it--until it fails. Staying the course is admirable, and even recommended in certain situations, but sticking with a failing or failed strategy is masochism. Learn how to adjust and recognize when it is time to do so.
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References
Resources
- Photo Credit investment image by Kit Wai Chan from Fotolia.com
