How to Start Investing in the Stock Market

A lot of people want to invest, but they get discouraged because they don’t know how to start in the stock market. Financial institutions make it seem overly complicated with all the candle charts and complicated terminology.

The truth is that investing has never been easier. I am going to show you how to start investing today, even if you are a total beginner.

You don’t need a finance degree, you don’t need extensive diplomas, you also don’t need any expensive tools or equipment. The only thing you need is curiosity and a little bit of common sense.

There is also a common misconception that to start in the stock market you need to have a lot of money. That is not true. You can start even with £10. Patience and having a plan are far more important in the long-run than having a head-start with more money.

Yes, having more money to start is nice, but it is not that important and you can certainly achieve great things with persistence and some common sense.

Now that you know all that let’s get to the point. Here is a guide on how to start in the stock market step by step.

1. Learn How it Works

The first and most important thing you need to do before you start investing is to figure out how it actually works. I advice you to first get a little bit of understanding on how the economy works.

This is a fantastic video by Ray Dalio that explains that in a very simple manner. There is hardly anyone in the world that understands macroeconomics better than him.

So now you have an idea of how the economy works it is time to understand How The Stock Market Works. A common misconception by people is that investing in stocks has anything to do with ”The Wolf of Wall Street”. People also often mistake investing with day-trading.

Investing is much simpler and have nothing to do with those complicated Technical Analysis charts.

Technical Analysis Chart. Investing Have Nothing To Do With It

2. Learn the Basics

Now that you know how it works it is time to learn some basic stuff around the stock market. What I advice you to do is learn some of the more basic Metrics. You don’t need to know all of them since day one, but learning the basic ones like P/E ratio is going to be helpful.

If you are looking for some education Here is a list of all my favourite books on the topic.

3. Choose a Stock Broker

A stock broker is the place where you can buy and sell stocks. This is where you can buy all the stocks and ETFs. Opening an account with one is free and all you need is a bank account.

My advice to you is to choose a cheaper option when you are starting out. Large broker fees can eat up a big part of your returns, especially when your portfolio is smaller.

On the other hand be careful with smaller brokers and make sure you choose a well-known one. The good part is that there are plenty of good ones, which offer either no fees or very small fees.

If you are in the UK good options are Freetrade (If you use this link to sign-up, we both get a free share) or DEGIRO. The first one is cheaper as it offers zero-commission trades. The second one have more stocks available and more functionality, but is a bit more expensive.

Both are great options with a very user-friendly interface and signing up to either one of them is going to take a couple of minutes. DeGiro also operates in most countries across Europe, while Freetrade is UK-only as of now.

For everyone in the US I recommend M1 Finance, it is a very user-friendly platform,. And it offers commission free trades, fractional shares and a lot of functionality for long-term and dividend investors.

For everyone living in other parts of the world Interactive Brokers is a good option. It operates in a lot of countries around the world and offers very low fees and good functionality. It is a bit more complicated and requires some form of minimum investment, that is why it is not the best option for beginners.

Still if none of those is a good option for you Google is your friend. A simple search will bring you a lot of results. Make sure you include your country as not a lot of brokers work across many countries.

4. Choose a Strategy

Now that you have a stock broker it is time to think Strategy. Having some sort of strategy is crucial if you want to be successful in investing. I cannot stress enough how important it is to pick one suited for your specific needs.

The good part is that there are strategies for every person. It doesn’t matter if you are a financial genius or someone who have nothing to do with finance.

Picking your strategy also depends on how much free time you have and how interested you are in the stock market. For example most of the people are best of just investing in a couple of ETFs and that’s it.

Of course if you are interested in business and picking stocks yourself there are a lot of things you can learn and the rewards can be bigger as well. The important part is that you should not just change strategies all the time. Pick one you find suitable to you and stick with it.

That is one of the main reasons Warren Buffett has been so successful in the stock market. He has been using the same strategy for over 50 years and he always sticks with it. The result – 20% average return for over 50 years.

5. Learn How to Research Stocks

Now that you have your strategy it is time to understand how to be able to pick your stocks/ETFs. Doing your Own Research is crucial, it is very important that you pick stocks/ETFs that you stay behind.

There are a lot of people online that are pushing things in the sort of ”Top 3 Stocks of the Month” or ”The Best Stock to Pick in January”. It is important to understand that blindly following such things is not going to help you long-term.

What is going to help you is picking your own strategy and choosing your own stocks/ETFs. This is because once you pick someone else’s stock you are going to be in the unknown.

Let’s say you pick ”The Best Stock to Pick in January” and that stock goes down 40%. What are you supposed to do in such scenario? You don’t know the company well enough and either selling, buying more or holding might be a mistake.

The same goes if the stock actually goes up 40%. Yes that is great, but if you don’t know the business you don’t know what causes the stock to go up. In such a situation once again you are not in control and are most probably going to make a mistake on whether to hold it, sell it or buy more.

On the other hand if you have made your own research you know the company well. You know the management, you know how their business works, you know their competition. In case the stock goes down 40% you are in a much better position. You will clearly know why is that happening.

In that case you can make a much better decision on whether you should sell, buy more or just hold. Hope you get my point, the sooner you do the better you are going to do in the stock market.

6. Build a Watchlist

First let me explain what is that. Watchlist is a list of stocks, that you are going to follow more closely. There are thousands of stocks and ETFs in the world and it is impossible to follow all of them all the time.

This is why you should narrow your search down to the companies that you like. You do this by placing them on a watchlist. I like using Seeking Alpha for this purpose. It lets you make a model portfolios and gives you all the news around the stocks that you have chosen.

For example I have 4 different watchlists there. One for Dividend Stocks, one for tech stocks, one for REITs and one for ETFs. This way I have all the stocks that I have an eye on organised and receive all the news I need around them.

There are of course tons of different services to track your watchlist/model portfolio. You can use Morningstar, Yahoo Finance or many more. All of them are free and are going to save you a lot of confusion in the future.

Having a watchlist is also going to save you from a mistake you can make – buying a stock without doing any research. Just because you like a company doesn’t mean you should buy their stock straight away. Place it on your watchlist and have a look through it first.

7. Start Building Your Portfolio

Ok, now you have some knowledge, an account with a stock broker and a watchlist full of good companies. You can now slowly start Building Your Portfolio. Yes, I did use the word slowly, because portfolios are not built overnight.

This is the whole purpose of having a watchlist. Once you place the companies you like there you can start buying the ones that reach your target price. Target price means the price that you are comfortable paying for them. That applies to ETFs as well.

But why is target price important? Because if you buy companies at the right price you are going to be more confident holding them for the long-term. You will also be more confident buying more when they go down. That is because you have figured out their fair value and everything below that is undervalued.

What is important to understand is that there is nothing wrong with taking your time in the stock market. Don’t rush and you will slowly but surely get the portfolio that you want.

It doesn’t matter if you are investing in stocks, ETFs, mutual funds or real estate, this applies to all of them.

8. Stick With Your Plan

Investing is a long-term game and the sooner you understand you need to be patient the better for you. Don’t take rash decisions when you are building your portfolio and most importantly stick to your plan.

Remember that the stock market is volatile and it can go up but can also go down. That is why the best approach is to have a systematic investment plan and stick to it for the long-term.

The three probably most well-known investors in the world are Warren Buffett, Ray Dalio and Peter Lynch. If there is one thing that they have in common is that they have been using the same strategies during their careers.

Yes, their strategies are different from each other, but they have found the one that works for them. As a result they have one of the best track records ever. Buffett with 20% annual returns, Dalio with 14% and Peter Lynch with whooping 28%!

If you want to learn more about their strategies you can find some of their best books Here.

9. Contribute/Reinvest

This is where things start to get easier. I often like to compare investing with having a garden. For example let’s say you have a walnut garden.

In the first couple of years you have a lot of work and almost no reward. The trees are growing, you have to put a lot of care in them and figure a lot of things out. In the meantime they are bringing you almost no fruits at all.

But once they get big and strong they start to take care of you. They only need some watering every now and again and they are bringing in loads of fruit.

It is the same with investing. At first you have to learn some things, make your watchlist and find good companies/ETFs worth investing in. Then you need to create you portfolio.

But once you do that and have your portfolio built up the only thing you need to do is contribute to it and reinvest your dividends. Once you have enough income coming in you can even stop contributing/reinvesting. Which brings me to the final point.

10. Enjoy

This is why we do all of it. If you have done everything right you will have a strong portfolio that is going to bring you a lot of ever-growing income.

The beauty of this whole thing is that the income is going to be completely passive. You don’t need to do anything to get those dividend payments or the capital appreciation. You have done all the work in the beginning and can now enjoy your life.

Conclusion

That sums up how to actually start investing in shares of different companies. When you first think about it it sounds very confusing and somehow out of our reach. But with the advancement of technology it has never been easier.

Today we have all the information in the world on the tip of our fingers and it is up to us if we want to use it or not.

Hope you had a good read and you learned the most important thing in investing- how to actually get started. Thank you for your time and on’t forget to subscribe if you want to stay updated on new articles.

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Disclaimer : Investing involves a risk of loss.