Where To Begin: A Guide To Getting Started With Share Investing

Investing in stocks is a powerful way to grow your wealth over time. Here is a step-by-step guide on where to buy shares and invest.

Firstly, you need to set clear investment goals and determine how much you can afford to invest. Then, you need to decide how much risk you can tolerate and pick an account at a broker that matches your trading style. Next, you need to fund your stock account and start trading.

The easiest way to buy stocks is through an online stockbroker. These companies allow you to open an investment account. After opening and funding your account, you can buy stocks through the broker’s website in a matter of minutes. Other options include using a full-service stockbroker or buying stock directly from the company.

When buying stocks, you should consider the company's performance, its competitors, its financial prospects, and the risks associated with the offer. You can also invest indirectly through a managed fund, which is a convenient way to buy shares as someone else makes the buy and sell decisions.

How to buy shares online

Step 1: Set clear investment goals

Begin by specifying your financial objectives. Clear goals will guide your investment decisions and help you stay focused. Consider both short-term and long-term goals, as they will affect your investment strategy.

Step 2: Determine how much you can afford to invest

Pinpointing how much you can afford to put in stocks requires a clear-eyed assessment of your finances. This step helps ensure that you are investing responsibly without endangering your financial stability.

Step 3: Assess your risk tolerance and investing style

Understanding your risk tolerance is a cornerstone of investing. It helps you align your comfort level with the inherent uncertainties of the stock market and financial goals.

Step 4: Choose an investment account

You've figured out your goals, the risk you can tolerate, and how active an investor you want to be. Now, it's time to choose the type of account you'll use. Each has its own features, benefits, and drawbacks.

Step 5: Fund your stock account

By this step, you've picked a broker that aligns with your investment goals and preferences or is simply the most convenient. You've also decided whether you're opening a cash account, which requires you to pay for investments in full, or a margin account, which lets you borrow when purchasing securities.

Step 6: Pick your stocks

Even experienced investors grapple with choosing the best stocks. Beginners should look for stability, a strong track record, and the potential for steady growth. Resist the temptation to gamble on risky stocks, hoping for a quick windfall.

Step 7: Learn, monitor, review

Successful investors discover tips and strategies each passing day. As the stock market changes, staying up to date, going back to Step 1, reviewing your goals, etc., will be key.

Tips for buying and selling shares

• The most common way to buy and sell shares is by using an online broking service or a full-service broker.
• You can also buy shares directly from a company through an employee share scheme or invest indirectly through a managed fund.
• When shares are first put on the market, you can buy them via a prospectus.

How to choose a brokerage account

Choosing a brokerage account can be a daunting task, but it doesn't have to be. Here are some key considerations to help you select the best brokerage account for your needs:

• Account Type: The first step is to determine the type of brokerage account you want to open. Are you looking for a standard taxable brokerage account, a retirement account such as a Roth IRA or Traditional IRA, or a specialized account like a Solo 401(k)? Consider your investment goals and whether you want tax advantages or more flexibility in withdrawing funds.
• Costs and Incentives: Evaluate the costs associated with each brokerage account, including commissions, fees for different types of trades, and account maintenance fees. Some brokers offer commission-free stock trading, while others provide incentives like bonuses for transferring a large investment account.
• Services and Conveniences: Look beyond pricing and consider the services and conveniences offered. Do you want access to research and analysis tools? Are fractional shares important to you? Do you prefer a user-friendly mobile app or a full-featured desktop trading platform? Would you benefit from having physical branch offices for in-person guidance?
• Broker Tools and Support: Evaluate the level of support and educational resources provided by the broker, especially if you're a beginner investor. Consider the trading platforms, customer service options, and the ability to test-drive the platform before committing.
• Comparison and Due Diligence: Take the time to compare multiple brokerage firms and evaluate their pros and cons based on your priorities. Consider factors such as costs, investment options, customer support, and platform usability. Remember that switching brokers can be a hassle, so it's worth spending time upfront to make an informed decision.

How to research stocks

Researching stocks can give you a long-term advantage as an investor. By using analytical methods, you can identify stocks trading for a discount to their true value and be in a great position to capture future market-beating returns.

Understand the Two Types of Stock Analysis

There are two basic ways to analyse stocks: fundamental analysis and technical analysis. Fundamental analysis is based on the assumption that a stock price doesn't necessarily reflect the intrinsic value of the underlying business. It is designed for investors looking for excellent long-term returns. Technical analysis assumes that a stock's price reflects all available information and that prices generally move according to trends.

Learn Some Important Investing Metrics

• Price-to-earnings (P/E) ratio: A company's share price divided by its annual per-share earnings.
• Price-to-earnings-growth (PEG) ratio: A stock's P/E ratio divided by its expected annualised earnings growth rate over the next few years.
• Price-to-book (P/B) ratio: A comparison of a company's stock price and its book value (the net value of all its assets).
• Debt-to-EBITDA ratio: A good way to gauge financial health; a high debt-to-EBITDA ratio could be a sign of a higher-risk investment.

Look Beyond the Numbers to Analyse Stocks

This is perhaps the most important step in the analytical process. Here are three other essential components of stock analysis that you should watch:

• Durable competitive advantages: Identify a durable competitive advantage or economic moat in the company's business model. This could come in the form of a trusted brand name, patents, or a large distribution network.
• Great management: The CEO and other main executives should have successful and extensive industry experience and financial interests that align with shareholder interests.
• Industry trends: Focus on industries with favourable long-term growth prospects, such as cloud computing, payments technology, and healthcare.

Where to Find Information

• Research platforms: These can provide a wealth of information, such as quotes for individual stocks, company financial statements, and key company statistics.
• Company websites: Investor relations websites often contain commentary directly from a company's management team, as well as annual and quarterly reports.
• News and research reports: Being aware of potentially market-moving news can make a big difference when deciding when to buy or sell a stock.
• Social media: Social media is increasingly being used by investors to get the latest information.
• Analyst research reports: While not everyone agrees, some people consider analyst views and recommendations highly.
• SEC reports: Publicly traded companies are required by the Securities Exchange Commission (SEC) to report financial information to the public in quarterly 10-Q reports and annual 10-K reports.
• Stock screeners: These tools can help you quickly find investing candidates that meet your desired objectives and risk tolerance.

How to decide how many shares to buy

When deciding how many shares to buy, there are several factors to consider. Here are some guidelines to help you make an informed decision:

Investment Capital and Share Price

Calculate how much money you have available to invest in a particular stock. Then, find the current share price of the stock. Divide your investment capital by the stock's share price to determine how many shares you can purchase. For example, if you have $1,000 to invest and the stock is trading at $40 per share, you can afford to buy 25 shares.

Fractional Shares

Consider whether your broker allows you to buy fractional shares. Fractional share investing lets you purchase a portion of a share, giving you access to stocks with high share prices and facilitating diversification. If fractional shares are available, you can buy the exact number of shares calculated in the previous step. If not, you will need to round down to the nearest whole number.

Diversification

Diversifying your investments across multiple stocks can reduce risk and maximise potential returns. It is generally recommended to hold at least 10 to 15 different stocks in your portfolio. Avoid putting all your funds into a single stock, as this can be extremely risky.

Risk Tolerance and Investment Horizon

Consider your risk tolerance and investment horizon when deciding how many shares to buy. If you are comfortable with higher risk, you may invest a larger portion of your funds in a particular stock. Additionally, if you have a long-term investment horizon, you can be more aggressive with your allocations without worrying about short-term market volatility.

Fees and Transaction Costs

Take into account the fees and transaction costs associated with your stock purchases. If your brokerage platform charges a flat rate per transaction, ensure that the fee does not significantly impact your returns. You may want to postpone purchases until you have enough funds to minimise the fee's impact.

Remember, there is no one-size-fits-all answer to how many shares you should buy. It depends on your personal financial situation, risk tolerance, and investment goals. Always do your research and consider seeking advice from a financial professional before making any investment decisions.

How to sell shares

Selling shares is not a complicated process, but there are a few things to keep in mind. Here is a step-by-step guide on how to sell shares:

Know When to Sell Shares

This depends on your investing strategy, timeline, and risk tolerance. It's important to check your emotions and not make impulsive decisions. Good reasons to sell shares include ongoing poor performance, irresponsible leadership, and a desire to invest your money elsewhere. Bad reasons typically involve knee-jerk reactions to short-term fluctuations or one-off company news.

Decide on an Order Type

When selling shares, you can choose from various order types, including market orders, limit orders, stop orders, and stop-limit orders. A market order is executed ASAP at the best available price. A limit order is executed only if a specific price or better is reached. A stop order is a type of market order that is executed when the stock reaches a certain price. A stop-limit order combines a stop order and a limit order, meaning the limit order is executed when the stock reaches the stop price, but only if the limit price is reached.

Fill Out the Trade Ticket

You will need to fill out a trade ticket or order form to initiate the sale. This will include information such as the stock symbol, the number of shares, the order type, and the time in force (how long the order remains open). After submitting the form, the trade will typically settle within two business days.

Additional Considerations:

When selling shares, it's important to remember that the process may differ depending on whether the shares are from a public or private company. For private companies, the easiest option is usually to sell the shares back to the issuing company. If that is not possible, you will need to find a broker who can help you find a buyer and facilitate the transaction.

It's also crucial to consider the tax implications of selling shares. For example, capital gains taxes may apply, and there may be other tax liabilities to take into account. Consulting with a tax advisor or financial advisor can help you navigate these complexities.

Frequently asked questions