Investing In Stocks

Advanced Learning

Investing in stocks is a way to grow your capital by buying shares or stocks of exchange listed companies which has potential to grow in future.If you are just getting started with stock investing, this guide is perfect for you.Many beginners get confused on how to invest in stocks.You don’t have to be once you complete reading this valuable guide.Basic confusion when it comes to investing in stocks is the right stock selection.

Which stocks to invest in or how do we select best stock which can produce decent returns overtime ?

Lets clear one thing here,even though there are many technical analysis and fundamental analysis theory of identifying good stocks,you will never find a way to pic right stock for investing which has chances of growing 100 %.You might be wrong few times in picking growth stocks and you might pick good stocks few times using analysis.

So what you need to learn is right way of picking stocks for investment and the best way to reduce your risk when you pick wrong stocks.Risk management is the key when it comes to stock investment.Along with risk management you should also be aware of position sizing on your capital amount.Hope you got a brief idea about investing in stocks.Now lets get started with our guide.

How can you invest in stocks

First thing you need to know is stocks are shares of companies listed in stock exchange.So when you buy a stock of a company you are purchasing shares of companies.You can directly purchase stocks of private companies using companies direct stock purchase plan.Best way to purchase stocks is through registered stockbrokers.Stockbrokers acts as an agent between you and the stock market exchange.

Invest in stocks using companies direct stock purchase plan

Companies providing DSPP(Direct Stock Purchase Plan) share information’s on their website.There might be a minimum investment amount required to purchase through DSPP.If you are interested to buy stocks using DSPP,you can directly contact the companies.Apart from minimum investment amount,there will be a one time setup fee.Below you can see images from The Walt Disney Company (DISNEY STOCK-DIS) providing information to shareholders.

disney company direct stock selection plan website informationOn the right side you can clearly see in above image The Walt Disney Company Investment Plan.Once you visit the information page you will be able to see more details about their investment plans.

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Plan prospectus with enrollment form is available on Disney website.Below initial investment,minimum optional investment of $175 or $50 and maximum optional investment of $250,000.00 is mentioned.

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One time enrollment fee is mentioned as $20.You can also see more details on there website.So when you plan to buy stocks through direct stock investment plan,check complete details on companies website.

Buying stocks through stockbrokers

Another way of purchasing stocks is through stockbroker.Stockbrokers are agents between you and security exchange where stocks of private companies are listed.You just have to open an brokerage account with a registered stock broker like Interactive Brokers,Sharekhan etc.Below image shows you how a trading platform with listed stocks in it looks like.You can directly buy or sell financial securities from your stockbroker platform.

Stockbroker Trading Platform Example

You can learn more about how to buy or sell stocks and different types of orders from trading platform through our stock market order types.

Capital required to invest in stocks

As you have seen from above examples of each stock has a different price.If you are choosing direct stock purchase plan,you need to have the minimum investment mentioned on companies website.And when you buy through stock brokers,it’s completely your choice.

You can buy minimum of 1 share by paying per share current market price.If you choose to buy 100 shares,just multiply current market price by 100 for capital amount.For day trading you don’t need to have complete capital.You can use leverage provided by your stockbroker.

Minimum capital requires to carry an overnight position is called as margin amount.And capital required for day trading is called as span amount.As a beginner in stock markets, it’s better to start with a small size capital first before you understand market behavior and risk management properly.

Alternatives to investing in stocks

Well there are many other alternatives available when it comes to investment but nothing comes close to investing in stocks if you compare the returns.Being said that lets look at few alternate investment products.

Mutual funds

Mutual funds are returns generating schemes managed by professionals where retail traders can invest.Mutual funds invests in large pool of combined equities or other financial securities from the money raised by large group of individual investors.Your returns or income through mutual funds completely depends on overall performance of mutual funds you opted for.

Bonds

A bond is a fixed income producing security which assures investors of guaranteed returns.Bond issuer agrees to pay a fixed returns on maturity date to the investors.Bond issuer can be a corporate or government bodies like local municipal corporations.Government bonds typically generate a returns of 5-6% per year.

Fixed deposits

Fixed deposits investments locked for certain amount of time period.You can look for an easy  7-8% yearly returns on your investment with top performing fixed deposit schemes.Fixed deposits guarantees investors with assured returns.It is best suitable for investors who wants to neglect capital losing risks.

Commodities

Commodities like gold and silver can be part of your investment plan.You can opt to buy physical commodities or contracts of commodities traded on exchange.Exchange traded commodity index products are also available for investors.Returns on commodities completely depends on existing demand and supply.

We have seen few alternatives to stocks above.Now lets look at risk management you need to be aware before investing in stocks.

Risk Management

Purchasing stocks brings risk factor with it.The real risk is stock prices going down after you purchase.To reduce the risk factor you have to aware of how to minimize your overall risk.Below you can see few key risk management points to note before investing in stocks.

  • Determine your initial capital
  • Determine how much you can afford to loose from your total capital
  • Create a maximum loss percentage from your total risk capacity
  • Fix a total capital size percentage for every investment you make
  • Exit your investments in individual stocks when it reaches your maximum loss percentage

Now lets look at an example to understand above mentioned key stock investing risk management points.

First key point is to fix your initial capital.Let’s assume that you are starting with $1000 as your capital.

 

Portfolio diversification

Using indicators for stock investing

Tax Benefits

Summary

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