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It would be a great injustice if we assumed that you know what a stock or stock market is because that is what we would be doing if we go ahead and define stock investing. Instead, let us talk about stocks and stock markets before we resume the definition of stock investing, okay?
Stocks are shares of a company, and owners of the stocks have the right to vote on any issue that affects the company’s future operational direction and profitability. A shareholder is the name of the investors who buy these stocks.
On the other hand, a stock market is a platform where investors buy and sell shares in companies. Take the example of the Toronto Stock Exchange (TSX). The TSX enables stock buyers and sellers to transact in an efficient environment.
Various reasons motivate people to buy stocks, and the following are the main ones:
Stock exchanges are just one story of the stock market because you can also invest via over-the-counter (OTC). A stock exchange is a middle-party (working in close association with stockbrokers) that connects stock buyers and sellers. Exchange supervised trading has the advantage of stability regarding liquidity and market price and keeps a certain level of transparency.
On the other hand, OTC markets are unsupervised, and buyers and sellers interact directly. The benefits of such a decentralized market are the speed of transactions and price freedom. Nevertheless, the market is wanting in terms of transparency, and market price and liquidity are unstable. Usually, stock exchanges are the best place to start stock investing because of the available investor protections.
A 2020 BMO RRSP study noted that 77% of Canadians have interests in some kind of asset. However, under 30% hold stocks. Stock investing may be underwhelming, perhaps because people do not know how to begin the journey. Here is what you can do in three simple steps.
How do you want to invest in stocks?
First, you need to decide if you want to buy stocks over an exchange or via an OTC market. Complete beginners are better off starting with a stock exchange because it is simple, and there are many people and entities ready to hold your hand.
Secondly, determine the kind of investor you want to be. Do you want to do everything by yourself, or would you rather have some do the legwork for you? If your knowledge of stocks and stock markets is sophisticated, you are okay choosing stocks for yourself. If not, you can seek help from the many Robo-advisors available online.
Select a stock investing account
You would need to open a brokerage account if you decided to choose stocks for yourself. Canada has hundreds of stockbrokers who link investors up with TSX, and the Canadian Stock Exchange (CSE), among others. Brokers offer online accounts through which you buy and sell stocks.
For those intending to use Robo-advisors, you need to open an account with your choice’s Robo-advisor service. What happens is that the entity will manage the funds that you deposit in the account. Opening such an account takes longer because you will need to provide finer details, such as your investment goals and the companies whose equity you wish to hold.
Make a budget
We can guess that by now, you have started asking yourself questions such as, how much money should I set aside for stock investing? Well, there are two sides to the question, each requiring a unique answer.
Firstly, the market price of stocks determines the amount of money you need to have. A high market price requires more money if you are to own a certain number of shares. The second part of the question speaks to your financial capability; how much money can you set aside for this venture?
This is the point where you make a priority list that governs how you distribute your money across various assets. We say so, assuming that stock investing is not your sole avenue for investing.
Track your portfolio
If you decided to DIY, then the daily gyrations of stock prices are your major focus. You will need to check in on your portfolio regularly and to make the right decisions as required. Tracking your portfolio’s performance is the most critical part of this business because you will be able to adjust the portfolio accordingly in line with your long-term goals.
Stocks represent an investor’s part ownership of a company. It means you partake in the companies profits and losses.
Always start small, whether you are running your portfolio or you depend on Robo-advisors to do it. You can then begin to increasing the funds over time based on your portfolio’s performance.
Over 30% of Canadian investments are in the stock market, which means people get returns. Nonetheless, it would help if you prioritized educating yourself through extensive research before jumping into the market.
Picking the right stocks begins by setting clear goals for your portfolio. Then, you need to stay abreast of news and trends that impact the company and the sector to which it belongs. Before buying a stock, do exhaustive due diligence by studying the company’s financial report and its competitors.
Start with setting personal goals, such as saving for retirement or a dream expensive vacation one year away. Next, think about how you want to approach the activity. Do you want to do it yourself, or you want to leave the nitty-gritty to professionals?
