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How to invest in stocks: a guide for newcomers

Investing in the stock market means putting your cash into company shares, which should rise in value over time, so you could end up with more money than from interest on a savings account. By investing your money regularly, you may be able to increase it many times over time. Stock investing, when done well, is among the most effective ways to build long-term wealth.

Before we get started let’s define the stock market: Stocks which are also called equities, are securities that give shareholder ownership interest in a public company. If you own all the shares of a company you control, you control how the company operates.

Here is a step by step guide to help you get started:

Decide how much you will invest

you should only invest what you can afford to lose, money you will not need for the next 5 years or so. It’s a long term investment and there is no guarantee that the money you invest will make you a profit.

Define your tolerance risk

stocks are categorised in various ways, such as large capitalization stocks, small cap stocks, aggressive growth stocks and value stocks. As soon as you determine your risk tolerance you can set your investment strategy.

Open an investment account

opening a brokerage account is generally easy but you should consider a few things before choosing a particular broker. Identify the type of account and compare costs and features for various brokers. Some brokers offer customers a variety of educational tools, access to investment research and other features that are especially useful for newer investors.

Create a diversified portfolio

Diversification is important because it reduces the risk of any one stock in the portfolio hurting the overall performance very much, and that actually improves your overall returns. An example is that if you own a diversified portfolio based on S&P 500, you will own stocks in hundreds of companies across many different industries.

Avoid short term trading

understanding whether you are investing for the long-term future or the short term can also help determine your strategy. Research shows that most short-term investors, such as day traders, lose money. You are competing against high-powered investors and well-programmed computers that may better understand the market.