Elsie UdohIf you’re looking to invest your money in a profitable venture, you’ll find that the stock market has much to offer.
But then, like every other investment, starting can be uncertain and challenging. It’s even harder when you’re a beginner.
Join our WhatsApp ChannelThis article will guide you on how to start investing in stocks as a beginner—from a detailed explanation of the stock market to a step-by-step guide to finding the right stock and investing wisely.
What is the Stock Market?
What do you think of when the word ‘market’ is mentioned? Buying and selling, you’d agree, whether in a physical or online marketplace. That’s pretty much the same with the stock market, except that what’s being traded here are neither goods nor services but ‘company shares’.
So, typically, the stock market is a place where shares of publicly traded companies are bought and sold.
Buying a share in a company simply means that you are purchasing a small ownership stake, and depending on the growth of the industry, your shares can expand or you end up running at a loss in cases where the business folds up.
So buying shares is one part of the investment journey; hoping that the business performs well is another. The value of your investment fluctuates based on the performance of the company and market conditions.
Investing in the stock market allows you to share in the profits of businesses that you invest in and while this is a sweet investment deal, it is important to understand the basics by thoroughly studying the pros and cons, if possible, with the aid of a financial advisor before diving in.
With that all cleared out, let’s take a look at some of the best stocks that would make an excellent start for you as a beginner before we go into the details of how to start investing in stocks as a beginner.
Best Stocks for Beginners
In order not to run at a loss or invest your money in a bad stock, you need to be well-informed from the start and have a clear idea about the kind of stock that would make a great investment for you as a beginner investor.
Here are our recommendations for that:
Blue Chip Stocks
Some organisations are more known, reputable, and have a long history of stable performance than others. The shares of these kinds of organisations are referred to as ‘blue-chip stocks.’
These kinds of companies span across sectors such as technology, healthcare, and consumer goods and are good starting points for you as a beginner.
Investing in blue-chip stocks as a beginner helps you to own a piece of well-established companies that are not volatile and easily affected by market changes, like smaller, less established companies.
Although these stocks may not provide the explosive growth potential of some smaller companies, they often offer steady growth and, in many cases, regular dividend payments, which are great starts in your investment journey.
Dividend stocks
Another attractive stock for beginners is dividend stocks.
These stocks are shares of companies that distribute a portion of their earnings to shareholders regularly, usually quarterly.
This offers a steady income to you as an investor while you also benefit from additional gains in stock price.
If you are looking to see tangible returns from your investments quickly, then investing in dividend stocks is the way to go.
Index Funds and Exchange-Traded Funds (ETFs)
These are collections of stocks that track a specific market index or sector. They allow you to invest in a basket of stocks rather than a single company, which can spread out risk.
They are desirable stocks for you if you’re starting with little money, as they allow you to gain exposure to a broad range of stocks with a single purchase, often at a lower cost than buying individual stocks. Many ETFs also have low minimum investment requirements, so you can easily get started on your investment journey with them.
Step-by-Step Guide to Investing in Stocks as a Beginner
We’ve explored what a stock market is, and the best stocks to start your investment journey as a beginner. Let’s look into a detailed step-by-step process for investing in stocks as a beginner.
1. Set Your Financial Goals
Remember, whoever fails to plan, plans to fail. So, start by knowing ‘why’ you want to invest, and it has to be a strong why if you’re going to be able to push through with it.
Are you saving for retirement, a major purchase, or general wealth growth? Whatever your goals might be, being clear on them will help you to shape your investment strategy, identify the types of stocks that suit your needs, and know how much risk you take on.
2. Create a Budget
After setting your goals, the next step is to decide on the amount of money that you’ll be willing to invest.
This doesn’t need to stretch beyond your means, as some stock investments with trustworthy platforms can start from as low as ₦10,000.
3. Choose a Stock Broker or Platform
Choose a reliable brokerage or investment platform to buy and manage your stocks. Look for platforms that align with your budget, provide adequate and clear information, and have a wide selection of investment options so that you are not limited in your choices.
4. Research Potential Investments
After choosing the right platform, conduct extensive research on both the companies and the investment options you’re interested in.
Check their financial statements, industry performance, and expert analysis to know more information about them.
You can use websites like the Financial Times, Yahoo Finance, or specific broker platforms that provide data and news to help guide your decisions.
5. Understand Different Order Types
These are instructions to a broker to buy or sell a stock, and they provide information on how to proceed.
Understanding the different order types is important because they can affect the price of your investment, when the trade is filled or if it gets filled at all.
Some common types of stock orders are market order, limit order, stop order, etc.
A market order is used when you, as an investor, instruct the broker to buy or sell the stock at the current price as soon as possible.
A limit order is used when you want to specify the price at which you want to buy or sell the stock. For example, a buy limit order can only be executed at the limit price or lower.
A stop order is when you instruct the broker to buy or sell the stock when it reaches a specified price, known as the stop price.
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6. Diversify Your Portfolio
Putting your money in one stock can lead to a higher risk potential, so try diversification instead by spreading your money into more stocks and sectors.
This way, risks are limited, and you can get more stable returns over time.
7. Monitor and Adjust Your Investments
After investing, regularly review your investments and make adjustments, such as buying or selling your stocks where necessary.
The stock market can be unpredictable, so it is important to stay updated on market trends and avoid the temptation to sell based on short-term fluctuations.
Frequently Asked Questions On Investing In Stocks As A Beginner
How Much Do I Need to Invest in Stocks?
The amount you need to start depends on the broker and platform you choose, but many now allow you to begin with as little as ₦10,000.
However, keep in mind that investing larger amounts can improve your potential for returns over time.
Is Stock Investment Safe?
While stocks have growth potential, they’re inherently risky and can be influenced by economic shifts, company performance, and even global events.
That’s why it’s important to conduct thorough research and keep educating yourself on the stock market and trends. Also, diversify your portfolio and invest with a long-term view to mitigate some risks.
How Do I Choose Legit Stock Investments?
Select companies with good financial health and avoid ‘get rich quick’ schemes. Established companies or indices like the FTSE 100 can provide more stability for beginners.
What Are the Risks of Investing in Stocks?
Some risks to expect in stock investment are market risk (the value of stocks can fluctuate), liquidity risk (difficulty selling stocks at a desired time), and even currency risk if you are investing internationally.
Knowing these risks will help you make informed decisions alongside a trustworthy financial advisor.
Elsie Udoh is an SEO content writer who specialises in writing engaging stories that resonates with diverse audiences. She studied mass communication at the Lagos State University.
