Investment in Securities: Where to Start?
Despite the fact that most people find trading on the stock exchange very confusing and incomprehensible, almost anyone can start investing in securities. Only a little patience and attention is needed, since thoughtless actions in 99% will only lead to losses. To avoid them, we suggest that you look through our material, where we will tell you how to start investing in securities.
Investing in a Nutshell
Without going into details, the investment in securities is based on the principle of mutual benefit. When a company needs additional finance for its development, it issues stocks and makes them available for public sale. A buyer, in turn, can buy them, thus transferring his funds to the company and receives the right to a part of its profits.
An alternative option is the purchase of another type of securities - bonds. They differ from shares, as payment on them is guaranteed by law and is of higher priority in case of bankruptcy of an enterprise. At the same time, it is impossible to get money for them at any time you like, since the repayment period is fixed. The second disadvantage for the investor is lower yield.
In general, both types of investments have their pros and cons, and every customer can choose what is more appropriate for him: potentially higher and faster returns of stocks or a lower risk level of bonds. Since most novice traders find it much more interesting to make quick profits, we’ll continue to focus more on stocks.
How to Earn on Stocks?
There are only two ways to earn on stocks:
Which Stocks to Buy?
This question requires a complex approach, implying division of all the stocks into three groups.
Stocks can be cheap and expensive. It is difficult to say which are the best to invest in. It all depends not only on the amount of money you want to spend, but also on the market situation. Practice shows that profit is possible in either case. For example, you can buy cheap stocks of a young company that suddenly succeed, or invest in expensive securities of market giants, which pay dividends not very quickly, but on a regular basis.
Stocks can be:
Companies all over the world issue stocks, and you can invest in almost any of them. Statistics shows that stocks of domestic companies are significantly cheaper (Gazprom’s stock price was only RUB 163.00, Sberbank – RUB 235.00 as of the day this article was written). Dynamics of the Russian companies is a little bit different, as they grow faster than foreign ones when the market goes up, and they depreciate more when the market is in decline (during downturn).
Stocks of foreign, and especially US, companies are the most popular among investors, since they are more stable, and all profits are immediately calculated in currency and little depends on fluctuations in the ruble exchange rate. However, the value of stocks of major US firms is significantly higher (for example, Microsoft - $123.00, Coca-Cola - $47.00).
How to Buy and Sell Stocks
The most convenient way to enter the stock exchange is trading with a broker, an intermediary company that ensures opening of a special brokerage account and the execution of your orders. An individual cannot start trading on the stock exchange without intermediaries.
We recommend you to read our previous article, where you can find detailed information about the process of sale and purchase, as well as the brokerage services.
How to Guarantee Successful Investment in Securities?
Unfortunately, no one can give you a 100% guarantee that the invested funds would be safe, that’s why experienced investors always warn: you should not try to make money on the stock exchange, investing the last money in stocks and waiting for the earliest profit growth. Such approach is likely to give the complete opposite effect. But in order to minimize risks, we offer you a rough action plan that will help you make your first profitable investment in securities.
Using this plan, you can become a successful investor, who will earn much in a few years.