You are at the online stock market website. As at any other market, you have a large selection of ‘goods’. When buying clothes or a new gadget in the online store, your only risk is that the product may not be to your liking, or its quality will be worse than expected.
Shares are quite a different story. A financial instrument should generate revenue or at least retain investment. As in any commercial operation, success comes here to those who carefully elaborate the plan beforehand and stick to it afterwards.
Step 1. Determine the goal.
‘What other goal there is?’ - You may wonder. ‘We all want to earn money.’ Getting income is not precise enough to be a goal. It is necessary to figure out every detail, your investment strategy, asset mix and portfolio compositions depend on it.
Answer these questions:
- What do you need your income for? If you want to save up for frosty years of life, that is one strategy. If for a large purchase (for example, of an apartment) there is another.
- What amount do you need to achieve this goal?
- How soon do you need the amount?
- What part of primary income are you willing to invest in securities?
- Is the possible loss critical for your budget?
The more ambitious the goal is (shorter terms, larger amounts), the more aggressive should be your operations in the market. Expected high income is associated with high risks. Think about it; are you ready to accept loss? Yet even better, consult experts on Freedom24.
Step 2. Select securities for your purpose.
Evaluate each paper by such parameters as: potential growth of investments; profitability; security and liquidity. Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. From this point of view, it is better to purchase shares of ‘blue chips’ - large companies with solid incomes and dividends (for example, Microsoft or PayPal). But for the increase of your investments, little-known companies can be more promising. When deciding, analyze the market data at Freedom24.com and Bondsfreedom.com.
Investments will be successful if we understand the market and its dynamics, take into account the macroeconomic situation in the country and in the world, and have a trading insight. Without these traits you can invest you money in unreliable papers, and thus expose yourself to the risk. A risk can either pay off or leave you ar a loss.
Step 3. Determine the balance of your portfolio.
When selecting shares, think of what proportions they will make the portfolio. It should bring profit, even if some of the securities go down in value. Use such an investment strategy that takes into account your goal and your willingness to take risks.
Supporters of the risk-averse approach make the foundation of their portfolio of liquid stocks. If you prefer to take risks, increase the amount of securities with high growth potential. If not ready to evaluate the market on your own, turn to the experts' ready-made proposals. And don’t forget the special facilities. For example, a stop-loss which means sale of shares when their value drops to a level indicated by the investor. This will help you save your money if something goes wrong in the market.
Step 4. Choose a strategy.
There are three major strategies in the stock market:
- dividend income is the simplest strategy. Their amount is calculated from the net profit of the company for the fiscal year (or half year / quarter). All shareholders registered as of the reporting date have the right to receive dividends. In the classic dividend strategy, you hold securities and receive a steady income. At the same time, the value of the stock itself is unimportant. There is another scheme – to purchase shares right before the cut-off (the date of stock ledger closure) and then sell them (of course after their value increases again after a mandatory post-dividend falling).
- long – purchase quality securities and watch them grow. The sale of shares well-grown over a long period time yields an investment income.
- short - earnings on a decline in exchange rate. We do not recommend this strategy. To use it you need to be a very experienced investor in order to calculate actions proactively for many moves ahead.
And the most important advice - do not rush into it. Think twice about every move you take and do not succumb to the bouts of market panic. You will do it!