Simple way to start investing money in stocks
Starting small while learning how markets work is the best way to start.
What is the best way to start investing?
Starting small.
Many people assume that in order to be successful at investing one needs thousands of dollars to start. Now we have all heard about the success story of Warren Buffet, the Oracle of Omaha.
Buffet started out with very little money but what set him apart was his ability to analyze patterns and numbers from a very young age. Due to his sheer determination and abilities, Warren Buffet is now one of the greatest investors if not the GOAT.
Although some may argue that if we factor in the inflation rate at the time, price per share ($38) would significantly go up ($551.38). We have to remember that Buffet started his own business very early and was quite entrepreneurial to say the least. Another point to consider would be that when he was 11 years old, he went into stocks with his sister.
How can I start investing small amounts of money in stocks?
Taking from the Oracle’s early years, a good way to start would be learning the basics and understanding how to analyze the stock market.
- Investment characteristics.
Start by comparing various alternative shares to determine which best suits you. - Financial goals.
Are you looking to invest your money long term or short term? depending on your preference, there are asset classes suited best for each duration. - Comfort level (tolerance).
Are you low, moderate, or high risk tolerant? This can help you narrow down to a preferable asset class allocation. - Amount to invest.
Finally, set aside the amount of money you are willing to start with until you feel confident enough.
How do you pick a stock?
After going through the above factors, the next step would be visiting an investment company. These are financial institutions that specialize in investing.
They handle all the back-end load for you and help grow your portfolio. If you do not know how to pick a stock they will teach you the basics before you start investing.
So let us say you have finally decided to invest but you do not understand anything about investing. So you go to a company and they offer to invest on your behalf since they are professionals. The first thing they’ll do is to acquaint you with the major categories where your money will be invested.
Asset classes
Those categories are known as asset classes. This is where the company will actually invest your hard earned cash. There are three major asset classes:
- Stocks- part of a corporation you’ll own once you invest.
- Cash equivalent- assets of a corporation you invest in that are converted into cash fast.
- Bonds- you loan the government or corporation money and they pay back with interest.
After familiarizing yourself with asset classes the company will help you decide how much to invest in each asset class. This is called asset allocation.
What is strategic asset allocation?
Strategic asset allocation is simply deciding how much money you’ll invest in each asset class.
A strategic allocation would look like this: stocks 70% bonds 20% and cash equivalents 10%. After a given period of time the company checks to see if everything is on course. If the percentages change then they’ll either buy or sell some asset classes to maintain the initial 70%, 20% and 10% ratio you started with.
