How to Invest in Stock Market for Beginners – Invest in stock market is a key to secure your financial future. It will help you in earning high return on investment in short period of time.
However, you should have some necessary knowledge to do this. Well, the good news is that you’re in the right place to learn everything about stock market for beginners.
Table of Contents
Documents Required For Investing In Stocks
- Your PAN Card
- Your Aadhaar Card
- Your name on a canceled cheque from your active bank account
- A proof of your residence based on a list of documents that have been accepted by your stock broker, depository participant, or bank
- Documents detailing that you earn an income
- Passport-sized photographs of you
2. Demat Account
A demat account is that which will hold one’s shares in the name of the account holder. A demat account serves as an electronic house for your shares. It is opened online with the help of a depository participant. Many banks also offer Demat account services to their investors. Opening a Demat account is a hassle-free process that can be carried out from the comfort of one’s home within a matter of minutes.
3. Trading Account
A demat account and trading account go hand in hand. Demat refers to ‘dematerialized’ which indicates that it is a storehouse for your shares. A trading account, on the other hand, is the account with which you buy and sell securities that you wish to trade on the stock market. When it comes to investing in stocks for beginners, you cannot do so without having both a Demat and a trading account. The Bombay Stock Exchange and the National Stock Exchange are both primary exchanges where most good quality stocks are listed. However, some stocks may only be available on either one of these two exchanges. Hence, a general tip is to open your trading account with a depository participant who offers trading on both BSE and NSE.
4. Linked Bank Account
As you are choosing to invest in stocks, you will be buying and selling them over time. For this, you will require a bank account that is linked to your trading account. This ensures that money flows in and out of your account seamlessly while you trade. This is mandated by most brokers with whom you will choose to open a demat and trading account.
These days you can find two in one accounts that serve as both a Demat account and a trading account. Some brokers also offer three in one account where one can trade directly from their bank account and store their securities in the same location.
The Investment Process
Where to Start Investing in Stocks
The first step is for you to open a brokerage account. You need this account to access investments in the stock market.
The next step is to fund your brokerage account by transferring money from your bank account to fill trades of stocks you want to buy. The amount of money you choose to invest depends on your risk tolerance, goals and how much money you’re comfortable potentially losing.
Remember, while over time, the stock market typically increases in value, there can be short-term market fluctuations, which can put your money at risk.
How Much Money Should You Start Investing in the Stock Market?
Several online brokers such as Betterment don’t charge fees for a $0 account balance, nor do they require a minimum amount to open a trading account. You can start investing with as little as $100.
Discount brokers are a boon for beginners with little money who are often looking to get stock market exposure with smaller portfolios. But a discount broker typically does not provide advice or analysis. Many of these brokers don’t require a minimum amount to start an account, while some have a low beginning threshold of $1,000.
When one chooses to invest in the primary share market, they can do so through an initial public offering or IPO. To do so one will require a Demat account to hold electronic copies of their shares as well as a trading account so they can apply online. In some cases, one can also apply through their bank account. Based on the market’s response to the IPO, a select number of shares will be allotted to you. Once all the IPO applications are received and counted by the company, those shares are allotted based on demand and availability.
It’s quite simple to apply for an IPO through your net banking account via a process that is known as Application Supported by Blocked Amount (ASBA). In this process, assuming you have applied for shares that are worth ₹1 lakh, this amount will be blocked into your bank account instead of being sent directly to the company. Once your shares are allotted, the exact amount is then debited with the balance being released. All IPO applications have to compulsorily follow this procedure. Once shares are allotted, they are listed on the stock exchange, and you can begin trading them within one week.
The secondary market is what is typically referred to as a stock market. This is the market where all the action among investors of buying and selling stocks is. To invest in the secondary share market, you require a Demat account which should be linked to your bank account.
- When it comes to investing in stocks for beginners on the secondary market, it’s crucial to open a demat and trading account using one’s linked banking account.
- The next step is to log into that trading account.
- Then go ahead and choose the shares that you wish to sell or buy.
- Ensure that you have the requisite amount of funds in your account that can help you buy the shares. Alternatively, if you wish to sell, make sure you have the right amount of shares before you choose to sell.
- Next, decide the price at which you want to buy a share versus sell it.
- Wait for the buyer or seller to reciprocate to that request.
- Complete your stock market transaction by transferring the money/shares and you will receive money/shares.
Although it can appear complicated to newbies, as detailed above, the process of investing in stocks for beginners is quite simple. Keep in mind that it’s crucial to be aware of one’s investment horizon and financial goals before they jump into stock market investing.
Have an Investing Strategy, Especially During Market Volatility
It is normal for the stock market to experience bouts of volatility. During those periods, stocks tend to experience price fluctuations. This can happen when there is uncertainty in the markets and tends to be short-lived.
Daniel Beckerman, president at Beckerman Institutional in Oakhurst, New Jersey, says “Over the long run, we have seen a 10% or greater downturn in the stock market more frequently than once every two years (on average).”
You should prepare to be invested during these rough periods, Beckerman says, if you expect to do well throughout your investment time horizon.
Volatility can certainly be concerning, especially if you are a beginner who hasn’t experienced it before. That said, you should put your money in companies that can generate consistently growing revenues over a long period. That way, you have confidence in the company despite the stock’s price swings.
The biggest asset young investors have is time, says Sameer Sawaqed, host of “The More We Know,” a podcast for Generation Z investors.
“Gen Z investors can increase their risk exposure because even if we go through a downturn, we still have 40-plus years on our side for the market to recover before retirement. As a result, we can handle more risk,” he says.
When investors have conviction in a company, and its stock price falls, they may see this as an opportunity to buy more of the stock at a better price.
Invest on Your Own, With a Robo Advisor or With a Financial Advisor?
Investing in stocks can be done in many ways, but before you start investing, it’s important to determine what type of investor you are. Decide whether you want to take a do-it-yourself approach or work with a professional financial advisor who can advise you through your wealth management.
To take the do-it-yourself approach and manage your own investments, you can open an online brokerage account. If you’re unsure about where to start, consider opening an account with a robo advisor, which will do some of the heavy lifting at a lower cost.
Once you open an online brokerage account, you’re asked questions to determine an investment strategy that will assist in your investment decisions. These questions involve knowing your specific financial goals – such as retirement or a big purchase – and your risk tolerance, which is the degree of market variability you can withstand in your investments.
Stephen Mathai-Davis, co-founder and CEO of Q.ai, an artificial intelligence robo-investing platform, says investors should have a core goal before they start investing. This goal will drive investors’ decision-making processes.
How to Choose Which Investments to Make
Beckerman says that by looking at a company’s metrics, you can gain insight into how companies and industries are performing.
“For example, when price-to-earnings or price-to-sales ratios are elevated, we can get some sense as to when certain stocks or industries are priced in bubble territory,” he says.
Investors also need to determine a stock’s value to realize if it’s undervalued or overvalued, so they know how to approach the investment. Stock valuations, Beckerman says, provide investors with some color around the sentiment regarding various industry groups.
A stock’s price is different than its intrinsic value. To know how to value a stock, investors must dig into the company’s financial reporting history, understand the company’s role in its industry and how it fares among its competitors, among many other factors.
SEE: 7 Best Small- and Mid-Cap Tech Stocks to Buy. ]
Choose your stocks
Now that we’ve answered the question of how you buy stock, if you’re looking for some great beginner-friendly investment ideas, here are five great stocks to help get you started.
Of course, in just a few paragraphs we can’t go over everything you should consider when selecting and analyzing stocks, but here are the important concepts to master before you get started:
- Diversify your portfolio.
- Invest only in businesses you understand.
- Avoid high-volatility stocks until you get the hang of investing.
- Always avoid penny stocks.
- Learn the basic metrics and concepts for evaluating stocks.
It’s a good idea to learn the concept of diversification, meaning that you should have a variety of different types of companies in your portfolio. However, I’d caution against too much diversification. Stick with businesses you understand — and if it turns out that you’re good at (or comfortable with) evaluating a particular type of stock, there’s nothing wrong with one industry making up a relatively large segment of your portfolio.
Buying flashy high-growth stocks may seem like a great way to build wealth (and it certainly can be), but I’d caution you to hold off on these until you’re a little more experienced. It’s wiser to create a “base” to your portfolio with rock-solid, established businesses.
If you want to invest in individual stocks, you should familiarize yourself with some of the basic ways to evaluate them. Our guide to value investing is a great place to start. There we help you find stocks trading for attractive valuations. And if you want to add some exciting long-term-growth prospects to your portfolio, our guide to growth investing is a great place to begin.
Continue investing
Here’s one of the biggest secrets of investing, courtesy of the Oracle of Omaha himself, Warren Buffett. You do not need to do extraordinary things to get extraordinary results. (Note: Warren Buffett is not only the most successful long-term investor of all time, but also one of the best sources of wisdom for your investment strategy).
The most surefire way to make money in the stock market is to buy shares of great businesses at reasonable prices and hold on to the shares for as long as the businesses remain great (or until you need the money). If you do this, you’ll experience some volatility along the way, but over time you’ll produce excellent investment returns.
Conclusion
If you’re looking to start investing but don’t know where to get started, then this post is for you. It’s designed for anyone who is looking into the stock market for the first time, but I’ll also show you how even intermediate investors can learn something new. You’ll learn step by step how to get started investing in the Philippine stock market so you can finally start making money in the financial markets. At this point, I recommend starting out with a robo advisor.