Learning Resources

A Beginner’s Guide to Getting Started in Stocks (2022)

02 Mar 2022

A Beginner's Guide to Getting Started in Stocks | VI

What’s the one thing that the richest people in the world have in common?

All of them have some form of investment in stocks!

These days as inflation is becoming more imminent, storing your money in the bank would not generate much interest. Instead, you would be losing money!

This is why investing is a must.

If you’re ready to get started in stock investing, this guide is for you.

First things first

A crucial step in getting started in stocks is figuring out your goals. Understanding why you want to invest helps you establish a clearer goal and therefore a clearer strategy as well.

If you’re not sure what you want to do, a good starting point is to look at your finances to see how much money you'll need to retire. By this, you’ll get an estimate of how long you'll need to invest to get your desired retirement income.

Or you can ask yourself what you want to achieve by investing. Do you wish to grow your nest egg? Is it for your child’s education? Are you investing because you want stable passive income? Are you investing because you want to have the capital to start a business or travel the world maybe?

Once you’ve nailed down your objectives, concretise them through numbers. How much would you need to fulfil your goal?

Then, based on how much you need, it’s easier to start planning what you should do next. If you have a clear target, you’ll be less distracted in shooting the arrow.

Still, never forget to assess your risk tolerance. Because investments will always carry risk, you can lose money as fast as you earn it.

Hence, before investing, you should always know how much money you are willing to lose or how much risk you’re willing to take. These conditions would all contribute to how aggressive you should be in investing.

How to get started

How to get started in stocks | VI

The very first step is for you to set up an account in any of the existing brokerages you have access to.

Most brokerage platforms in Singapore allow you to trade in the US markets, if ever you’re interested to go beyond the Singapore Stock Exchange (SGX). The brokerages you can use to buy NYSE- and Nasdaq-listed stocks include ThinkOrSwim (TD Ameritrade), Saxo, and Tiger Brokers.

Once you have your broker account set up and funded, you will have to decide how much you want to allocate into your trading account.

How much to prepare

Before you put money in your account, make sure you have funds for the rainy days. As any investment involves risks, and this doesn’t exclude stock investments, it’s NOT wise to invest every spare cash you have.

Once you have an emergency fund and medical insurances all settled, then you can decide how much you want to invest in the stock market.

But underlying this decision are some questions you ought to answer: Will you only be investing in your local exchange? Are you planning to buy US stocks? Will you be trading regularly? How frequent will you be reviewing your portfolio? Are you going to do options trading?

All the above questions will help you decide how much you need to prepare to start investing in stocks. To illustrate, the US markets allow you to buy just one share, unlike other exchanges, e.g., SGX which requires you to buy in lot sizes of 100.

Plus, brokerages have different transaction costs and minimum deposit requirements, so you ought to look into those as well.

Several trading accounts (such as ThinkOrSwim, as of the date of writing) don't charge fees if you have no money in your account and don't demand a minimum deposit to create a trading account. With such accounts, you can begin investing with any amount.

Some companies also sell fractional shares or partial shares, which means you don't have to buy one complete share if you can't afford it. Whole shares of Tesla (Nasdaq:TSLA), for example, cost $860; thus, fractional shares make the stock more accessible to the general public.

Another option you can consider if you’re a low-income investor is to invest with discount brokers. You still can do the basic – which is to buy and sell stocks – and do so with lower commission rates.

This option, however, may not be too ideal if you’re keen to get some stock advice or analysis from your broker. Likewise, remember that some discount brokers require a minimum amount before you can start trading.

At the end of the day, remember to only invest money that you’re prepared to lose. And before funding any broker account, make sure you have done your research as to the minimum deposit, transaction fees, and privileges.

Which investments to choose

Getting started in stocks | VI

Now that you have decided how much to invest and which broker to use, it’s time to choose the types of stocks to buy.

When it comes to stock investment, there are two methods to make money -- selling shares when their market value increases or receiving dividends.

Dividends are payments from a company to its shareholders, paid as a way to distribute the company’s profits. They come in the form of cash or shares on a monthly, quarterly, or yearly basis.

Many dividend companies have a proven track record of strong cash flows, low debt, and high yields, which means investing in any good dividend company can give you a stable source of income that can be reinvested into other companies.

However, if you choose to profit from buying stocks that you can sell once the price appreciates, you can consider looking out for undervalued stocks. When deciding if a company is undervalued or overvalued, we need to look at some metrics, such as growth potential, quality of its management, and profitability.

Or you can even hit two birds with one stone by investing in a good stock that gives out dividends and has good growth potential to give you capital gains over time.

And because the price of a stock may differ from its actual value, you must study the company's financial history, how it compares to its rivals, and many other things to determine its value. Likewise, we must also include factors such as volatility, which most often is unpredictable.

See also: Top 3 Things Investors Look For in a Company

Creating a strategy

Because of the stock market’s vulnerability, stocks, which are thought to be reasonably secure, could face price changes often, particularly when there is market uncertainty.

Volatility can be scary, especially if you're a beginner who hasn't dealt with it before. Historically, there has been a 10% or higher drop in the stock market once every few years.

If you want to profit over time, you should plan for times like this and use it to your advantage.

What you can do is to invest in companies that can continuously expand their sales and earnings over time, regardless of market fluctuations. That way, despite the volatility, you can continue to hold and have faith in the company.

To learn how to identify companies you can have faith in for the long term, come join our free two-hour investing masterclass.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.