If you are looking for an investment with high returns and low initial investment then putting your money in the stock market may be right move for you. Many people have made millions buying and selling stocks. However, many people too have lost money due to both ignorance and bad luck. To minimize the risk of loss, a person must have knowledge on how to invest in the stock market wisely.
You must first understand what the stock market is. The stock market is where shares of ownership of different companies are bought and sold. Since you become a part owner, you participate in the company’s earnings or losses. So while there is a greater chance of high returns, there are also risks.
However, history has shown that over the long term, the profits in stock investments are better than fixed income instruments like time deposits or government securities.
There are two ways you can earn money on your stock investments. One way is through the appreciation of your stock’s price. The other is through dividends declared by the company. At this point in time, however, few companies give substantial cash dividends and so most investors rely on the appreciation of the stock, treating dividends as just a bonus.
The first step to do is to study your own profile as an investor to know how much you can invest. Much will depend on your financial status and what stage of your career you are in. You can afford to be more aggressive if you would not be risking funds for your basic needs, your children’s education, or emergencies.
Second is to decide how much to invest. Although you can start stock market investing with just five thousand pesos with some stock brokers, the more funds you have the better you can diversify your holdings to minimize risk. Many experts recommend putting not more than twenty five percent of your savings to be safe. If you are near retiring then you must be very conservative and not put in more than ten percent of your available resources. Do not risk what you cannot afford to lose.
Third step is to open an account with a reputable stock broker. To make sure, you can get a complete list of accredited stock holders by visiting the Philippine Stock Exchange (PSE) website at www.pse.com.ph. Some of the requirements to opening an account are two valid ID’s, specimen signature cards, and proof of billing. You may also be asked to provide a cash deposit in order to begin investing.
Fourth step is to decide what stock to pick. If you do not want to bother studying particular stocks, an alternative is to just buy into a mutual fund which is composed of a wide variety of stocks. To get information about the stock market and specific stocks, one of the best sources, is again the PSE website. Check out too the websites of the companies you are interested in and try to get a copy of their annual reports. Read books and browse sites on stock market investing if you want to improve your stock picking skills.
Fifth step is placing an order. There are many ways of placing an order. You can order by phone or text to your stock broker. It is even possible to buy stocks through the internet if you have an online broker. Once your order is completed, your stock broker will give you a confirmation invoice indicating the details of the transaction. Traditional brokers settle their transactions three days after the trade are done. And so you must pay for it within three working days after the trade. However, online brokers, settle transactions on the day of the trade.
Stock market investing is truly a fascinating subject and this article is just a brief overview of the topic. It would be best if you first get to know more before risking your hard earned cash. BusinessCoach Inc., provides seminars on how to invest in the stock market.
Originally published by the Manila Bulletin. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc. – www.businesscoachphil.com) All rights reserved. Posted with permission.