Investing in the stock market may seem, at first, the exclusive province of financial experts. However, by knowing a little about how the markets work and following a series of basic tips, anyone with a minimum capital can start investing in the stock market.
What is the bag and how does it work?
The stock market is a market in which marketable securities are bought and sold, such as stocks, currencies, bonds, and other more complex products. The stock market is based on the law of supply and demand: if a stock is in high demand, its price goes up; If everyone wants to sell the shares of a company and there are few interested buyers, the price of the share falls. Through the stock market, companies obtain financing and, for their part, investors can become shareholders of a company.
To begin with, you must bear in mind that investing is not the same as saving: investing involves taking a certain risk in the hope that your money will produce a return. That is why the first basic advice to start investing in the stock market is to discover what your investor profile is. To find out, you must:
- Set your financial goals. Investing in the stock market does not consist of simply buying shares, but the first thing is to determine what is the objective of your investment. Do you want to get some extra income on a regular basis? Buy you a house or a car? Pay for your children’s studies? Secure your retirement? Financial goals are not the same for everyone and will vary depending on what stage of life you are in. So it is time to specify these objectives and set a realistic time frame to achieve them.
- Know your financial availability. What income do you have? What savings do you have? What part of them can you allocate to an investment without jeopardizing your financial stability? To do this, you simply have to calculate how much of your income you need to meet day-to-day expenses and reserve a percentage for contingencies; what you can spend on investment. And if you have previous debts that generate high interest, the first thing is to get rid of them before you start investing.
- Determine your tolerance for risk. Are you conservative or risky with money? To know this, you must take into account two perspectives: an objective one, which has to do with your financial capacity to assume the losses derived from an investment, and a psychological one, which is to see how having to assume those losses would affect you personally.
Choose a trusted broker
Once all these aspects have been defined (objectives, available capital, risk profile), it is time to look for an intermediary who will be in charge of investing in the stock market for you, with prior authorization from you. It must be authorized by the National Securities Market Commission to offer investment services. To make sure that this is the case, you can consult the public records of the CNMV, where it is also possible to find out if the company in question has been the subject of any warning from supervisors.
In order to process investment orders in the Stock Market by the client, the intermediary provides investment services for reception, transmission and, where appropriate, execution of orders. The provision of the investment advisory service may or may not take place (advised / non-advised transaction). For this, it is mandatory to evaluate the suitability of the client (by means of a suitability test or by other means).
- Your knowledge and experience regarding the types of services, operations, and financial instruments that exist, what is your educational level, and what do you do?
- Your financial situation: what are your income, what assets do you have, what periodic financial commitments do you have to face …
- Your investment objectives: what is the time horizon foreseen for your investment, for what purpose you carry it out, and what is the risk and maximum loss that you can face.
With all this information, the intermediary will be able to recommend the most suitable investment product for you.
What to invest in?
It may be that you are clear in which product you want to invest your money, for example, in shares of a company that distributes dividends periodically. If it is a non-complex product, that is, one that an average investor can understand, the intermediary can limit himself to executing the purchase order, without being obliged to check if the product is suitable for you.
If you are a newbie in the stock market, you should always ask your intermediary for the information in writing, to be able to analyze in detail the characteristics of the product offered before contracting it and see, in this way, if it adapts to what you want. It is advisable to invest only in those products that are appropriate to the level of risk that we are willing to assume (the greater the complexity, the greater the risk).
Monitor and diversify
Once your money has been invested in the stock market, you must monitor the evolution of the investment, see how the company from which you have bought shares is behaving, if the profitability that was expected is being maintained, if the risks have increased or even, if the agreed commissions are being charged. In addition, you must stay informed through specialized media, the companies’ websites, or the relevant events section of the CNMV.
A basic piece of advice, valid for all those who invest in the stock market, is to diversify the portfolio and maintain investments with different time horizons.
In conclusion, what you should know when starting to invest in the stock market is that you are not going to play randomly. The decisions you make must be considered, not guided by fads or impulses, and always remember that there is no return without risk.
This information is disseminated exclusively for informational purposes and its content should not be considered as an investment recommendation or advice of any kind. Learn more about CEO fraud.