A Complete Beginner's Guide to Investing in Stocks

The stock market can be a daunting place for beginner investors.

But, it doesn’t have to be.

Knowledge is everything, and that’s why I write these blogs.

Today, I’m going to take you through everything you need to know about stocks, and how you can start building wealth in the stock market, today.

What are Stocks?

Stock is the term used for the shares that divide up who owns a company.

When someone says they own “stocks”, it means they own parts of companies.

If I buy a share of Apple, I can say I own “Apple stock”, or I am an Apple “shareholder”.

Anyone can buy stock (or shares) of any company on the stock market.

Some of the largest public companies are:

• Microsoft ($3T)

• Apple ($2.6T)

• NVIDIA ($2.1T)

• Alphabet / Google ($1.9T)

• Amazon ($1.8T)

If someone says:

“I own Apple stock!”

This means they own shares in Apple. Don’t be impressed by this though.

Someone could buy $10 worth of Apple stock and they could say that.

It doesn’t mean a lot, at all.

But, for the sake of your knowledge, stock means part ownership, however small this may be.

Stocks are traded in their billions every week day on the stock market.

Anyone over the age of 18 can buy and sell stocks.

For many new investors, the stock market is still the go to place to start investing.

But, like any other asset class, stocks still have their pros and cons.

Benefits of Stocks

High Upside Potential

Individual stocks have the potential for great upside returns.

But, this depends on a few things:

• Overall economic conditions

• Market sentiment

• The stocks that you buy

Even some of the biggest companies have given investors huge returns.

This shows that you don’t need to search for the next big thing, and take on a lot of risk.

Returns over the past year:

• Microsoft: +34%

• Apple: +5%

• NVIDIA: +216%

• Alphabet / Google: +57%

• Amazon: +78%

Today, these are 5 of the 6 biggest companies in the world by market capitalisation.

Sure, you won’t get these returns every year. But, it’s evident that stocks can provide investors with a great ROI.

Low Barriers to Entry

The accessibility of the stock market continues to ease.

Anyone over the age of 18, with an internet connection can invest in the stock market.

The best part? You can start investing on a lot of platforms with as little as $10.

Imagine what investing was like 50 years ago?

• No smartphones.

• No easy investment platforms.

All you had was a bunch of dodgy stockbrokers.

No wonder old people hate investing.

But, it’s a different time today, and there’s no excuse not to get started.

Liquidity

Liquidity describes how quickly you can convert an asset into cash.

Stocks are as liquid as they come. You can sell shares in seconds, and have cash back in your bank account in a few days.

The only problem you’ll experience is that the market isn’t always open.

The stock market is only open during the day, and is closed on weekends.

Other than this, stock liquidity is high, and a great incentive to invest.

Liquidity is a journey. Visualise it.

Visualise the difference in liquidity between stocks and real estate.

It could take you months to sell a house. Compare that to selling stocks in a matter of seconds.

There’s no competition.

Drawbacks of Stocks

Can Be Volatile

Above, I gave you some examples of popular stocks which have had great yearly returns.

But, this isn’t true of every stock.

Some have risen 50–100%, but at the same time, others have fallen 50–100%.

Stocks can rise and fall quickly, depending on:

• Company performance

• Market sentiment

• Economic outlook

We call this volatility, and if your investments fluctuate a lot, it can be off putting.

You can counter this with diversification. But, there’s no denying that individual stocks can be volatile if you’re picking the wrong ones.

Need For Research

Investing in individual stocks can be rewarding. But, it’s important to know what stocks to invest in.

Except from if you want to take on a lot of risk, you need to spend a lot of time researching the best investments.

This could involved:

• Reading company reports

• Following trends on social media

• Staying up to date with company figures (earnings, sales etc.)

This can be time consuming. It could end up meaning that your investment returns become obsolete.

There’s always an opportunity cost when investing.

Don’t spend all your spare time getting a little bit extra, when you could have used your time in a more productive manner.

Too Much Choice

Not every company is public, but there are thousands that are.

The main incentive for a company to go public is to raise more money for growth, so it’s a popular method.

But, this can be a downside for investors.

There is so much choice, you could find yourself struggling to pick investments.

Or, you could find yourself buying too many stocks, and spreading yourself too thin.

As a result, you could hinder your potential returns.

Choice is good, to an extent.

But, if it’s starting to hinder your portfolio returns, you may have to start looking elsewhere.

How to Buy Stocks

Like I said earlier, stocks are bought and sold on the stock market.

To buy stocks, you have to:

Pick An Investment Platform

As a UK resident, my favourite platform is Trading212.

This allows me to invest into a Stocks & Shares ISA, an account where I can invest £20k a year, tax free.

But, if you’re not a UK resident, take some time to research the best platforms & tax-advantaged accounts in your region.

Create An Account

Once you’ve picked an investment platform, it’s time to create your account.

Like opening a new bank account, you’ll need details like:

• Name

• Address

• Identification

• Investment history

You shouldn’t have any trouble opening an account…

…unless you’re like a criminal or an illegal immigrant or whatever.

Deposit Funds

Once your account is up and running, you need to deposit some funds.

Most platforms will let you invest with as little as a few dollars, so do this.

As a beginner, it’s good to start small. You can learn as you go, and you’ll avoid losing loads of money if you make a mistake.

Submit Your Buy Order(s)

The only thing left to do is… invest.

To invest, you need to submit a buy order which:

• If the market is open — will be fulfilled straight away.

• If the market is closed — will be fulfilled as soon as the market opens.

Alternatives to Stocks

ETFs

Exchange Traded Funds, or ETFs, are also traded on the stock market.

An ETF is a fund which tracks the price of a specific index.

It makes investing into certain things easier for retail investors. You can invest into these funds without buying the real thing.

Popular funds include:

• Total Stock Market ETF

• S&P 500 ETF

• Gold ETF

• Oil ETF

• Bitcoin ETF

You can buy a Gold ETF, without having to buy gold itself. It tracks the price.

One popular investing strategy is set and forget investing.

This is where investors:

• Buy a broad ETF like The S&P 500

• Automate deposits either weekly or monthly.

• Forget about it, and watch healthy, low risk returns come in.

You don’t have the risks of buying individual stocks.

You also don’t need to spend loads of time on research.

ETFs are perfect if you want a more passive approach, and want the best return, for the least work put in.

Real Estate

Real Estate has helped investors build wealth for generations.

It’s one of the best performing asset classes for decades. Investors continue to use real estate as a wealth building market, for two core reasons…

Asset Appreciation:

Property prices have rocketed over the past few decades. It’s one of the reasons why investors continue to flock to real estate to park their wealth

Rental Income:

As well as the value of the assets, real estate can help you earn rental income. Renting out properties can help you earn a healthy side income, whilst your assets appreciate too.

Cryptocurrency

The first thing to know about cryptocurrency is to treat it like a casino.

Sure, more crypto assets are:

• Volatile

• Unregulated

• Manipulated

• Speculative

But, they also have the potential to help you retire, like, tomorrow.

The opportunities are endless, and that’s why it’s becoming more popular.

Investors don’t come to cryptocurrency for a safe investment. They come to…

• 10x

• 100x

• 1,000x

…their portfolios.

Of course, don’t put your whole portfolio into crypto.

But, there’s no harm in taking on some risk with the potential of generational wealth.

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