How to invest in Stocks – A Beginner’s Guide

Investing your money is important for you to grow your retirement portfolio so that you can properly financially retire. There are many forms of investment vehicles to choose from. But for this article, we will look at how to invest in stocks.

For most people starting out investing in stocks, they probably either hear from their financial advisor on the stocks they own on their ILPs (Investment LInk Policy) or watch a video on how investing can get you to financial success. For most beginner starting out and intent to buy stock of a company, its important for them to instead buy shares in an ETF (Exchange-traded fund) or mutual funds. This approach helps beginner to put money in the stock market even when you aren’t quite sure what you’re doing.

If you stick with investing, the temptation to trade into higher growth stocks for possible 2x 5x return is real! Having an index funds portfolio just isn’t as exciting and won’t give you the same jolt as stock trading. This level of greed is what cause beginner to investor to jump into the hype train and lose their money, don’t do that!

So how do you pick a stock that provide good investment return that is safe and has good level of growth for you to return on? Continue to read and at the bottom off the article you will find out how I use this strategy to earn a monthly income.

Set a Time Horizon for your Investment

Before investing your hard earn money, it’s important for you as an investor to know what is your investment time horizon. Investing can be volatile in the short term, hence as investor we will need to learn to invest for a long-term horizon perspective. Do consider what you aim to have in your investment timeline, let’s look at some examples:

1. I want to buy a Tesla by the time in 25 (3 years later)
2. I would like to buy a home in the next 10 years, investing my money now makes sense
3. I want to be financially independent by the time i am 50, i should start now so that i have a 30 year time horizon

As you can see, we each have a different time investment horizon for where we should put our money. In order to make your money properly work for you, you will need to set your money into an investment that is able to fit well in a certain investment time horizon. Investing your money into stocks for the next 3 years to buy a car may not be a wise choice as the market might not recover or do well. However if you are investing for the long term, investing your money for retirement would be a wiser choice.

Learn, practice and improve

Choosing a Full-service Broker

Choosing your broker to invest your money is a huge decision. To play it safe, investor should invest their money into larger investment brokerage firms for a number of reasons. This large brokerage firm usually have great offer for their most investment tools and resources, as well as customer support and educational content.

While opening multiple accounts on different platforms sometimes offer free stock, vouchers or gift, it is best that an investor focuses on just one investment brokerage account first. The investor will need to learn the how to of operating the brokerage app. Once he has fully understood the brokerage account, it would be a lot easier to understand the other brokerage platform as most are quite similar.

Here are 10 things you need to do research on when choosing a brokeraging platform that’s right for you:

1. Are the fees low-cost?
2. What difference does this platform have to offer compared to the competitors
3. Are the volume good for options trading (something option trader need to find out)
4. How long does it take to process buying and selling a stock
5. Is the platform user-friendly
6. Does the educational content provide value
7. Is the loading speed great?
8. Is it easy to use?
9. How am i protected should the brokerage go bankrupt
10. How fast can i deposit and withdraw my money

Myself personally, I have use multiple investment apps to invest my money and conclude here are my top brokeraging apps to picks.

Tiger Broker

MooMoo

Interactive Broker

uSmart

Invest with Robo-advisor

If doing individual stock picking isn’t your think and would like something that is actively managed with low cost. Investing into Robo-advisor would be the better choice for you. Robo-advisor target audience are usually first-time investor or lazy investor who simply do not have the time to constantly manage their portfolio. So if you think you are one of these people, do check out here the types of robo-investing apps for you to choose from.

How should I start Investing my Money

There are multiple investment strategy for you to invest your money, some strategy may fit better for certain job scope or an investment timeline. Ultimately, the best way is to get started and stick to an investment strategy that suits you.

Dollar-cost Averaging

DCA or Dollar-cost averaging provides a great way to gradually escalate your portfolio. You’ll create a portfolio of stocks and then increase your holdings every month.

For instance, if you purchase shares over the course of 12 equal monthly payments, your investment won’t be predicated on a single stock price. As an alternative, it will be based on the stock’s annual average price. In this manner, you will be purchasing further shares at lower costs, even if the stock price declines following your original purchase. Any price decreases are lessened by using this tactic.

By using this technique, an investor is essentially able to remove their emotion when investing their money. Without emotion when investing, an investor is able to remain calm even in terbulance times.

Lump sum

Lump-sum investing is used when an investor has a large sum of money and wishes to invest with it. By placing the entire money pot into an investment, the investor is able to simply buy-and-forget if he/she wishes to. As they said that the 2 best investors are either one that has forgotten about their investment or are people would have already died.

This investment method is great for mainly self-employed who have made a lump sum of money or investor who simply do not want to care about the market trends at all.

Start Investing into Dividend Stocks first

As Steven J. Lee famously said: “The first rule in making money is not to lose it.”

That’s excellent advice for any investor, but especially for beginners. If you’re determined to find the next Apple, Tesla or Amazon and you begin losing money on highly speculative stocks early in your investment career, you’ll probably give up and not try again for years.

To qualify as a dividend aristocrat, the stock must meet the following criteria:

• It must be an S&P 500 company (meaning a large company).
• Must have at least 25 consecutive years of increasing their dividend.
• Meet a certain minimum size and liquidity requirements.

These companies are regarded as bluest of the “blue chips”. Although the group normally outperforms the overall market, it often does remarkably well during market downturns. This is probably because equities with high dividend yields are less likely to experience price losses, which makes them good choices for novice investors. This is why I recommend investing into any dividend aristocrats, build a foundation for your investment to gain more confidence to adding in speculative or high volatility stocks.

Diversify and Manage your Risk Tolerance

An investment portfolio should consist of different level of safe and risky asset. Financial advisors typically measure the safety score by having a risky tolerance ratio in their investment portfolio. If you are someone who is able to stomach more risk, going into high risk asset for future growth potential may be the right choice for you!

That being said, an investor shouldn’t be too overly diversified with their money. A good rule of thumb is to have less than 10 stocks to invest in and shouldn’t invest more than 10% of your portfolio in any one company, in theory. That will limit the negative effects if the price of just one firm falls significantly.

When you have properly diversified your investment portfolio to be able to tolerant the individual level of risk. Investing becomes easy to manage and less stressful!

How much you need to invest to Financially Retire?

The goal of investing your money into stock is to let compound interest work for you. Knowing the math to how much you need to have in your investment portfolio is critical for you to understand how much you actually need to retire. So let’s take a look at an example:

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Monthly expenses = $2,000

Yearly expenses required = $2,000 x 12months = $24,000

Using the FIRE number needed to retire – monthly expenses x 12months x 25 years = $24,000 x 25 = $600,000

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Know that you know how much you need to have invested, do check on how much do you need to invest with the FIRE compound interest calculator.

How to Retire by owning Stocks?

There are multiple ways for you to get an income from owning stock unlike real estate or other investments. For stocks, stock holder can sell their stock or participate in stock buyback. Another way is for investor sell a covered call options for monthly income. Finally, the most common way investor make money from stock is through dividend.

4% Rule

Apart from knowing how much you need to invest into the stock market, the 4% rule is created by the Bill Bengen as a formula used when investor is able to maintain an investment growth of 10% per annum. Withdrawing 4% of the investor portfolio would be a safe number that does not get affected by the principal value and inflation. Lets look at the math example to see why:

Monthly required expenses = $2,000

Using the 4% rule on the $600,000 = 4% x 600,000 = $24,000

With that, the investor is able to get = $24,000 / 12months = $2,000 per month

Dividend Income

Dividend income is one most wanting to retire will need to build up on. Because a dividend income portfolio is generally regarded as less risky, the payout of the company would be quite consistent. Generally, a good dividend company would provide a dividend yield of about 1 ~ 4%. Anywhere above 4% is generally viewed as risky investment as the company shows that they do not know how to properly managed their money to invest and grow.

To get a properly diversified dividend income portfolio, here are the 5 main sector a dividend investor usually invest in:

1. F&B (Coca-cola, Pepsi, Starbuck, Macdonald)
2. Medical (Pfizer Inc., Johnson & Johnson)
3. Wholesale (Walmart, Cost-co, Target)
4. Utility (SEMBCORP)
5. REITS aka Real Estate Investment Trust (Capitaland Mall, Aperia)

Even with economic downtimes, dividend yield companies generally do not get affected as bad as other company. Therefore, they make great investments for retire to have stable income.

Options

If you feel like you have gotten a grasp of understanding on investing, maybe try learning options trading. Options allow an investor to earn a premium by providing a underlying security for an asset. In short, an investor is able to make money by providing insurance to other investor. In return, he/she is able to make money doing that.

Learning options trading does take a lot of time to understand. Therefore, I created an in-depth how to article on learning how to trade and make money through options trading. If you are interested to learn more, make sure to try run it on a paper account first to understand your brokerage software better and also to understand how options trading works.

Is Stock Investing Easy?

Stock investing can be really easy if you follow the steps to learn it. Most beginner investor fail to make money in the stock market because they are either chasing the returns of a company or trying to time the market. Another great quote by Warren Buffet is that “In the short run, the market is a voting machine. In the long run, the market is a weighing machine.”

I started investing at 20 and when I turned 24, I had amassed over $100,000 mainly through owning stocks. What I have learn in that 4 years of investing journey is learning to stay committed in your believe, invest consistently and learn to find ways to invest more.

So to conclude this part, yes I believe investing in stock is not hard. The problem mainly lies in commitment issue and doing the same thing consistently which is difficult. If you are unable to control your emotion when invest, maybe it’s best for you to invest with a fund manager or simply buy index fund of the S&P500. An index fund is what many American are invested in, the fund historically has been growing 10.07% per annum over the last 50 years, so it is pretty good.

Learn how to Invest in Anything

The problem with most investor is that they simply only invest into what they like or know. The world of investing is huge, literally anything can be an investment. From a physical Pokemon card worth hundreds of thousand, to art pieces you don’t understand worth million, to digital art selling for 24million dollar. Literally anything could be an investment if you can actually find the right buyer for it.

So as an investor, the main skill I believe everyone needs to know to grow money is learning what the future value of something may be worth. A great example of that is relevant in recent times is the EV (electric vehicle) market. Tesla was viewed as a stupid irrelevant car company less than 5 years ago. However, in recent times with rising gas prices and supply issue all around the world. The electric vehicle company is able to continue produce large volume of vehicle at low cost (they bought their supply with long term contracts) and is able to product a vehicle every 38 seconds.

Time, expertise and knowledge is what makes an investor great.