The moment you have been waiting for has arrived. Finally, after much effort, you have a small savings cushion that will save you in case of economic difficulties and that, if it continues to grow, can help you enjoy the retirement you deserve. What do you need now? Learn how to invest in the stock market !
Do not worry, it is normal to be scared the first time you are going to invest, it is that you are going to risk nothing more and nothing less than your savings. But I assure you that if you do it right, the results can be very positive.
Nor am I going to deceive you by telling you that you will always make money, because it really is not. But if you spend time learning to invest in the stock market, you will ensure that the savings cushion that you have worked so hard to achieve continues to grow little by little. Are you determined or determined? Well let’s go for it!
To know how to invest in the stock market, be aware of the advantages and disadvantages it has
Surely over the years you have heard hundreds of things for and against this way of obtaining returns on your savings. There are people who are fans of the stock market and consider it the best form of investment that exists. But we also find those who have an absolute panic and would never play their money in this way.
I personally place myself somewhere in between. I think that investing money in the stock market is a very good option, but it must be combined with other investment alternatives . In addition, you must always be very aware of the risks and act with caution so that, in the event of suffering losses, these are as few as possible.
If you are reading this article, it is because, at the very least, you are interested in knowing how to invest in the stock market. So I am going to talk about the advantages and disadvantages of this method. I consider it essential that you know them, because only then will you be able to know if it really is a viable option for your investor profile.
The good thing about investing in the stock market is that…
You diversify your assets and thus reduce risk
Whatever you invest in, you always have a certain risk of losing money. It is true that there are very very safe investment products, such as State Bonds . But it is precisely this excess of security that means that in the end you win practically nothing.
You find that you have your money withheld, and in the end what they give you for it is not worth it. Hence, more and more small investors like you and I are looking for alternatives and we want to play in the “big leagues” of investment but always with our heads.
Do you know the saying “never put all your eggs in one basket”?
Well, when it comes to investing, you have to do the same. In the stock market you have many assets to choose from. You can buy shares of oil companies, new technologies, telecommunications, public works, etc.
Without having to look for another form of investment, you can allocate your money to different products, and this is always an advantage. Thus, if some of your actions do not give the expected returns or even make you lose money, what you gain with others will compensate for what you lost.
Yield is higher in the long run
A good savings and investment strategy is to combine investments that give returns in the short and long term. In general, when we are investing, time always plays in our favor, since the longer we have a certain amount of money invested, the more return it will give us.
Although there are those who specialize in playing in the stock market in the short term (this is what we know as Forex) , the truth is that you achieve true profitability by keeping your assets for a long time. In other words, you don’t need to spend all day watching how the prices are doing, especially if you have invested in solid securities.
You don’t need a lot of money
Not everyone has the same ability to save. There are those who can save 10% or 20% of their income every month and there are people for whom this is totally impossible.
The good thing about the stock market is that it does not have the same entry barriers as other investment formulas. As soon as you have a little money saved, if you know how to invest in the stock market, you can start moving it so that it generates returns. In fact, it’s best not to wait too long. You already know that Warren Buffett is one of the strong advocates that you are never too young to start investing.
If you need liquidity, you have it
A real estate investment , a fixed term and a pension plan, what do they have in common? That once you put your money in them, it is to a certain extent blocked, since if you need to recover it, it will take a medium to long time to get it.
With investments in the stock market this does not happen.
If something happens that makes you need to get your money back, you can sell your shares immediately. An emergency sale may make you lose some profitability if the time you have chosen to sell is not the best, but in return you have your money back in your account in just a few hours, ready to deal with the emergency.
It is a regulated and transparent market
Undoubtedly one of the great advantages of this system is that it is very safe due to the regulation of the stock market. Companies that want to sell their shares must go through an exhaustive analysis to prove that they are really viable.
In addition, information on the profitability of companies is public. That way, before we put our money into their stock, we can find out in great detail how their track record has been so far. This does not guarantee the profit, but it allows us to be a little safer.
The bad thing about investing in the stock market is that…
Profitability is not assured
Although this is a disadvantage, it must be recognized that we are going to find this inconvenience in practically any investment product.
There is always a certain rate of risk. However, we have seen before that we can find the balance within the risk that we want to take if we diversify.
You need to have some basic knowledge
There is a lot of ignorance about how to invest in the stock market and many myths and legends regarding this system, which means that many people do not see it as a viable option for them.
What we cannot deny is that we cannot start playing our money without having any idea of how this system works.
Investing in the stock market requires a bit of effort on our part. First of all, we must learn some basic notions about its operation. And it doesn’t hurt to spend some time learning how the stock market is doing, either.
Markets are volatile
Many people who do not know how to invest in the stock market have the belief that with it they can obtain great benefits in a short time. But this is very complicated, and operating in this way requires in-depth knowledge, both of the stock itself and of the companies that operate in it, and of what is happening in the market.
In the short term, markets are quite volatile: what is worth a lot today may be worth nothing tomorrow.
And if we are not aware of this and if we become obsessed with achieving high profitability in a short time, in the end the only thing we achieve is losing money.
To make investments we must have a very well defined strategy.
Avoid common mistakes
Now you know that when you invest in the stock market it is not all rosy, but also that it is not something that is totally out of your reach. Now, if you really want to know how to make money in the stock market, you cannot ignore the common mistakes.
I’ve seen it time and time again: people who are carried away by the siren song thinking they’re going to get a lot for their money and finally find that they haven’t. What is behind all these cases are usually some frequent mistakes in which it is not strange to fall, if you do not know much about investments or the stock market.
My goal with this article is for you to know how to invest in the stock market safely, and in a way that is adapted to your needs and resources. Therefore, I do not want you to lose even one of your valuable euros because of a mistake. So take good note of all of them so as not to commit them.
Do not accept losses, a big mistake if you do not know how to invest in the stock market
I put it first because I think that when it comes to investing our money, the first thing we have to do is assume that, at some point, we are going to lose. This should not scare us, but it should make us act cautiously.
The history of investments is full of people who have gone bankrupt because they were afraid to sell shares when they were depreciating, in order not to lose money. In the end, they waited too long and found that those shares were dead paper and worth absolutely nothing.
Think that having your money captive in an investment that is not giving you profitability is of no use to you. Take it out of it even if you lose something and put it in another asset that does generate profits.
I have already referred to this before, but it still surprises me that there are so many people who end up losing a lot of money by putting all their savings in the same investment product.
It does not matter if you are going to invest in the stock market, in a pension plan or any other product, never put your money in a single investment product! Doing so is the easiest way to be left with nothing in case something goes wrong.
In the specific case of investing in the stock market, it is not only a mistake to always buy shares of the same companies. Nor is it advisable to focus only on one sector.
Imagine that in your portfolio you only have bank shares. You may have diversified if you have several entities. But if a financial crisis hits, all the stocks you own are going to lose value. Therefore, never focus on a single investment sector.
When we see images of brokers in the cinema, they are always stressed and making decisions at lightning speed. However, investing in the stock market is not at odds with taking things easy. In fact, acting hastily only leads us to make the wrong decisions because we have not fully evaluated all the options.
It is clear that it is not good to hold stocks that are losing value, as I have already mentioned before. But you don’t have to sell them at the first exchange either. The market is so volatile that a company can start the day with a loss and end with a profit.
Before deciding, you have to evaluate different possibilities. For that we must have a good understanding of how the stock market works and what is happening in the market exactly at that moment.
Thinking that big companies always recover quickly
In the portfolio of all investors there are usually what are considered “safe securities”. They are shares of companies with great stability. Many times they are not very profitable actions precisely because of that stability, but they provide a certain security knowing that the company to which they belong is a solvent entity.
But the market spares no one, and even the world’s most popular company can see its shares drop. Take for example Apple. It is one of the most valued companies, but its shares are not always on the rise.
It is true that a large company always has an easier time recovering from losses. If you hold the shares, surely in the end you will obtain profitability. However, thinking that just because it is a great company, it will come back is also a mistake.
It’s not that you’re going to go bankrupt if you don’t get your money out, as it’s very rare for a big company to go bankrupt. But sometimes the recovery takes much longer than expected.
It happened to Telefónica a few years ago. His shares traded at 7.60 euros and fell, then started to recover. But two years later they were still priced at around 6 euros.
Not reviewing the stock portfolio
Allow me some essential advice when it comes to how to invest in the stock market: as a small investor, you can’t and shouldn’t obsess over your stock portfolio, but it’s a mistake to completely disregard it.
If anything has been clear to us so far, it is that the markets are very dynamic and things can change in a matter of minutes. So a portfolio made in January of this year may not be as profitable in January of next year.
My advice regarding this is that you periodically review your stock portfolio and analyze if you are really interested in what it has, or if the time has come to make any adjustments.
Not having a goal
Making money is the goal of all those who invest in the stock market, that is clear. But not everyone has the same profit goals. Those who want to earn a lot of money in a short time should opt for risk assets, while those who are not in a hurry to grow their savings can adopt a much more conservative profile.
Your goals for your money will determine which products you should invest in and how you should act on them. Hence, it is a big mistake to start investing without knowing where you want to go. Set yourself a realistic goal and look for ways to achieve it.
Invest money you need for something else
Beware of this bug because it is extremely dangerous. It is one of the most you should avoid.
To invest, you first have to have savings . What are savings? It is that part of your personal capital that you do not need to cover any of your needs or your pending obligations. We can say that savings is what we have left over after having paid everything we owe and having filled our fridge. This is what explains that not everyone can save, and that the level of savings is very different from one person to another.
You should never invest money that you need for something else , that is, that does not constitute savings. It is true that shares become liquid money in a very short time. But if you sell in a hurry because of an urgency, you could end up losing money. And if you’re investing capital that really should have been spent elsewhere, there’s a good chance you’ll end up underselling the stock.
Not taking into account the associated expenses
There are many who think that investing in the stock market is winning or losing, and little else. But do not forget that this activity has a cost. And it is a cost that we must assess to see if the profitability offered by an investment really interests us or not.
Do not lose sight of the commissions , since these can often make an investment that is profitable a priori not as interesting for you as you thought.
If you operate through a broker, you will have to pay for each purchase and sale transaction, as well as a maintenance fee, for collecting dividends, for increasing the capital invested and for transferring shares from one broker to another.
The good thing is that there are so many brokers in the market that if you do your research, you can find one that applies lower commissions.
To learn to invest in the stock market, start these good practices
Now that we know what we must not do, it is time to analyze what we must do if we want to achieve success with our investment .
I warn you in advance that this means spending some time to make sure you’re doing the right thing. In no case can you enter the stock market “crazy”.
Take it easy and follow the tips below. You will be much closer to achieving your goal.
Educate yourself, learn how to invest in the stock market
If you are reading this article, it is evident that you have already taken the first step. But my goal is to give you some basic notions so you can know if this type of investment is for you. In case you reach the end of the article and you are encouraged with the bag, it is best that you train and inform yourself through specialized media.
I am going to take up the words of Warren Buffett again, and that is that there will be few people in the world who know as much about finances and investments as he does. He started investing his money when he was 11 years old and has come to point out that he should have done it before.
He is a genius, but he is also a very educated person. One of the best advice he has given to investors is to invest in themselves first, because they are his best asset.
Do you want to earn money with your savings? Do you want to achieve financial freedom ? Then do not hesitate to invest in training. The more you know, the better decisions you can make and the better results you will get.
Remember when you got your driver’s license. Before you got behind the wheel of the car, you had to learn the theory. Well this is exactly the same. First get educated, and then you get down to work with your investments.
Nowadays we have it very easy to learn about practically everything. Not only are there specific courses, you can also read reference blogs and media specialized in finance .
If you allow me an extra piece of advice, never stop training. The more up-to-date your knowledge is, the better. And this is something that does not only apply to training in finance and investment.
Determine how much money you are going to invest in the stock market
When you already have some savings , it is time to start looking for investment alternatives. Value what you have and what it cost you to get it, and don’t risk everything in the stock market.
The smartest thing in these cases is to start with small contributions. This minimizes the risk while you learn.
The rest of the money you have invested, put it in other products that also give you profitability. And keep saving on your own.
Between the money you save to invest and the profitability that what you have invested is already giving you, your savings continue to grow. At the same time, you gain experience on how the stock market works, so you can progressively increase the money you dedicate to this investment.
Define your investor profile
Before you start playing your money you must determine what your tolerance is regarding risk. Although you are investing money that, a priori, you do not have to dedicate to something else, you can be more or less tolerant of the loss of capital.
There is a direct relationship between risk and return.
Typically, the more risk an investment involves, the higher the return it can offer. But putting money in assets of this type is only advisable for those people who have a high tolerance for risk, who are generally those who have significant assets and who do not have too much trouble losing a few thousand euros.
Surely this is not your case, and it is not mine either. So you will surely have to place yourself in a medium to low investor profile, depending on the risk of loss that you are willing to assume.
Ask yourself a question: “what percentage of your capital could you accept to lose?” If it is very little, it is clear that you are an investor with a low risk profile, so the stock market may not even be a good option for you.
If it is a somewhat higher figure, you can qualify as an average profile investor. This will allow you to start looking for assets with a somewhat more moderate return but with less risk.
In other words, depending on your investor profile, you will know how to invest in the stock market and what your investment portfolio should be like.
Create a diversified portfolio
In your investment portfolio there should be a bit of everything. Those safe values that we talked about before cannot be missing, since they always generate some profitability. On the other hand, the ideal is to combine more stable actions with others that have a risk that you are willing to accept.
Don’t just limit yourself to well-known companies. There are many listed companies that may not be known by the general public today but that may be interesting for you.
As I have already told you before, try to have stocks from different sectors in your portfolio. And check back from time to time to see if it’s helping you meet your goals or if you need to make any adjustments.
Decide your investment attitude
This decision can be fundamental in the success of your investments. It is about choosing if you want to adopt a more active role and manage your investments yourself, or if you prefer a more passive role and you are going to leave this task in the hands of a specialist.
We have already seen before that having the services of a broker always implies a cost. But if you do not have a lot of experience, it is more worth paying a specialist and obtaining profitability (although you have to deduct the costs of having a broker from what you earn), rather than saving costs but not achieving the profitability you wanted due to lack of knowledge about the market performance.
Have a long-term mindset
Take the investment in the stock market with patience. The first time you do an intraday trade (buy and sell on the same day) it may turn out well for you, but this does not mean that it will always be like this, it may be a mere matter of luck.
A good stock investor puts his money into it with a long-term view. You’re going to make a profit, but it won’t be tomorrow.
Keeping your investments over time (as long as this is advisable) will help you learn little by little and make your decisions thoughtfully and once all the options have been thoroughly analyzed.
Choose a good broker
Your broker will have a transcendental importance in the success or failure of your investments. My advice is to choose someone who offers you confidence and who does not charge you too much. But in no case choose your broker solely for its fee. That it charges very little does not mean that it is the worst, but neither does an excessive fee imply that it is the best in its sector and that it will make you earn a lot of money.
Try to find a professional who offers you a price for their services that is in line with the market and do not hesitate to inquire about their reputation. This is the best way to know if you can trust him or not.
Are you ready to invest?
All the way we have traveled so far should help you to clarify your doubts regarding whether putting your money in the stock market is for you or not. If you think not, don’t worry: there are other forms of investment that can also give you returns and will prevent inflation from wreaking havoc on your savings in the long term.
If you have decided that you are ready to take the plunge and invest in the stock market, congratulations! The world belongs to the brave and you are one of them. Remember these tips that will help you start your path successfully:
- Learn about finances and always stay up to date with stock information.
- Never invest money that you know you will need for something else.
- Start by investing small amounts.
- Diversify your investments both inside and outside the stock market.