Getting into stock trading can be daunting — there’s a lot to learn to be able to get the most out of it, and the apparent volatility of the market’s ups and downs can seem off-putting if you aren’t keen on risky investments. However, more and more people are getting started as investors — more than 2.2 million British people own shares.
The risks of stock trading are more than made up for by the potential profit you can make in the long term. If you’re thinking of becoming an investor, here’s what you need to know to get started.
Make Sure You Can Afford to Invest
Before you begin to invest, save up several months’ worth of living costs, pay off any major debts, and ensure you’re up to date on mortgage repayments if you have one. If for any reason you lose your main source of income, you’ll need a financial safety net, and you don’t want to have to sell off your assets at the wrong time to cover a gap in your income.
You should also consider if it’s the right time to start investing. If you’re saving for something major — like a house deposit, a wedding, or a child on the way – it may be better to wait until afterward to begin investing rather than diverting your finances and potentially disrupting your life plans.
Do Your Research
To be an effective investor, you need to learn as much as you can about how the market works. Read up on the finer details of stock trading, and draw information from a wide range of sources – the finance section of newspapers, podcasts by expert traders, and friends and family who have their own portfolios can all give you a better idea of what you’re doing.
You should also see if your employer will offer any assistance – some companies offer investment support and advice as part of their pension packages, so make use of this if it applies to you.
Start off small
Don’t jump straight into big investments; it’s better to get a feel for the market with low-risk trading first. The rise of investment apps has been extremely helpful for this — possibly why more young people have begun to invest in shares.
For example, micro-investment apps allow you to invest small amounts of money – sometimes even as little as the change from your morning coffee — into shares, allowing you to get the experience of how the market changes day-to-day without risking large sums of money.
Some trading apps such as Plus500 also offer a free “demo mode” allowing you to purchase larger virtual shares that mirror the real stock market. This can help you to gain experience working with shares on a larger scale without risking any real money.
Consider EFTs
EFTs, or exchange-traded funds, are parcels of securities that are treated as a single stock. These make for a good first investment for new traders, as they give you access to a variety of shares without having to thoroughly research each individual one. You can also invest in active EFTs, which are managed by professional fund managers to give you an even more stable and reliable investment.
Create a diverse portfolio
Once you feel ready to research and buy individual shares, bear in mind that it’s better to build up a wide range of investments rather than to put all your money into one option. A diverse portfolio works on the basic principle of not putting all your eggs in one basket — if one stock happens to fall, you’ll still have the rest of your portfolio to fall back on.
Remember it’s a long term investment
Investing in shares isn’t a get-rich-quick scheme, and it’s unlikely to give you huge returns overnight. You need to treat it as a long-term investment, thinking in terms of at least five years to see a truly rewarding return on your investments. It can be tempting to start selling as soon as your shares begin to rise, but resist the urge — selling too early can mean missing even bigger rises in the long run.
