How to Invest Your Money in Shares: A Beginner’s Guide

Legendary investor Warren Buffet defines investing as “the process of laying out money now to receive more money in the future.” Investing in shares is one of those ways. In fact, it’s one of the most profitable ways to build wealth in the long-term. Today, thanks to the ease of access of information and technology, individuals are finding it easy to directly invest in the stock market. Let’s take a look at how you too can join the list of individuals investing in shares.

Contents

  1. How to Invest in Shares
  2. Choosing the Best Shares to Invest In
  3. Benefits of Investing in Shares
  4. Conclusion

How to Invest in Shares

Most people who invest in stocks do so for the purpose of buying them, holding, and then selling them in future at a higher value for profit. There are two reasons why people invest in shares:

  1. They expect the company they have invested in to grow and become valuable in the future.
  2. They shares they own enable them to receive a part of the company’s profit annually. This is what is known as a dividend.
  3. With that in mind, these are the various ways that you can invest in shares:

    • Buy and Sell Shares: You can buy the shares while their values are low and then sell them when their values increase. You can do this via an online broker, a traditional stock-broker, or a financial advisor.
    • Invest in Shares through a Fund: For instance through a mutual fund. All your capital gets collectively pooled and invested in a number of shares or assets and is managed by a fund manager. Investing in shares via a fund reduces the risks available to you as a single investor.
    • Employee Share Schemes: If your employer offers it, you can invest a small percent of your monthly earnings into this retirement plan. Contributions are deducted from your income before taxes which makes it even less painful. If you have a 401(k), you may already be investing in mutual funds or your own company’s stocks.

    Choosing the Best Shares to Invest In

    When selecting the best stocks to invest in, it’s important you choose highly liquid shares that belong to well-established companies that have a history of delivering steady returns. A great way to do this is to base your decisions on both technical and fundamental analysis. By leveraging these two forms of analysis, you can narrow down the best stocks to buy easily.

    It’s also critical that you consider companies from a variety of sectors. For instance, in the S&P 500 Index fund, there are 11 sectors to choose from. These sectors include energy, financial, real estate, material, healthcare, utility, technology, consumer staple, industrial, and consumer discretionally. By diversifying among these sectors, you have a greater chance of benefitting from the stronger shares in the portfolio, despite having weaker ones, thereby reducing the overall losses.

    You could also, consider investing in Exchange-Traded Funds (ETFs). They consist of a group of stocks and are weighted in such a way that one company can’t destroy the performance of the group. Therefore, they don’t have single stock risk in case a company loses significant value. As a beginner stock investor, here is a list of some of the top stocks that you can invest or buy when you are ready. Make sure to evaluate of they meet your personal goals or risk parameters. They include:

    • Berkshire Hathaway
    • JP Morgan Chase & Co
    • Bank of America
    • Wells Fargo & Co
    • Citigroup
    • American Express Co
    • Us Bancorp
    • Goldman Sachs Group
    • CME Group

    Benefits of Investing in Shares

    There are so many benefits to investing in stocks. Here are a few key benefits to investing in shares. They include:

    1. Capital Gain
    2. Any time you sell a share for more than what you bought it for, you earn capital gain. It happens when shares experience a significant rise in prices. It’s basically the long-term objective of investing in shares.

    3. Dividends
    4. A dividend is cash pay-out to a company’s shareholders as part of its annual profits. The larger the amount of shares that you have, the larger the dividend pay-out you receive.

    5. Shareholder Benefits
    6. Some shareholder companies in the retail, hospitality, retail, or entertainment sectors offer lavish discounts to their shareholders when they purchase goods or services from the company. In most scenarios, you need to have a lot of shares to qualify for these benefits.

    Conclusion

    As a beginner, it’s possible that you will start out with a small amount of money. While this may not bar your entry to investing in shares, choosing the right kind of stock investment will be particularly challenging. Therefore, before buying into any stock, take the time to understand the basics of stock investing. It certainly won’t make you an overnight success, but, you will learn how to invest in stocks without limitations.

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