CEOs/Founders – you have diligently accumulated funds for investing and it’s time to start doing something with the funds. Stock investing is one of the most popular ways to make your money to work for you. But how to buy stocks and shares? How to know which one to buy? This article can shed some lights for you.
Although we tend to think of shares as the reserve of City brokers in pinstriped suits, this isn’t the case at all. Shares are becoming far more accessible to the masses, thanks largely to the advent of the internet and smartphones, which give people the opportunity to invest anywhere and at any time. Anyone can invest in them, from the old lady who would like a slice of Marks & Spencer to the young hotshot who’s looking for a way to make their fortune.
If you, too, would like to get in on the action, here’s how to do it.
Be Aware of the Risks
Before investing any money in shares, you must understand the risks involved in sinking your capital into an unpredictable venture. Share prices can experience dramatic and welcome fluctuations, but they can also plummet drastically. There is an art to investing, but even the greatest masters cannot predict with 100 per cent certainty how the market will react to external and sometimes uncontrollable factors. Thus, before you buy anything, the wisest piece of advice that anyone could offer you is this; only invest money that you can afford to lose.
Do Your Research
Once you have ascertained that you have a source of income that you’re not reliant on for future security, then it’s time to do your homework. Thanks to the internet, a large amount of information about companies listed on the stock market is in the public domain and easily accessible. If there is a company that you think you might like to sink your capital into, then take a look at its recent performance, read up on current market trends and predictions and have a go at assessing the prospect of it remaining successful. As a rule, FTSE 100 companies will pose a safer bet than smaller, newer ventures, but the latter could provide the greater benefit if it prospers. The type of company you choose should be selected with the amount of risk you’re comfortable with chancing in mind.
Be Prepared to Make a Long-Term Investment
Lots of people are tempted to cash in their shares when the going is good, for fear that not seizing this opportunity will give share prices a chance to fall. However, as a rule, the only people who benefit from this type of ‘day trading’ are professional and experienced investors, and the ordinary share holder will make very little profit by cashing in on small price increases. Thus, it is advised that ordinary investors hold onto their shares for a period of at least five years. If you would prefer a quicker return, it might be worth exploring alternative investment avenues.
Choose Your Stockbroker Carefully
Shares must be purchased through a stockbroker. There are thousands of them in operation, and it’s up to you to choose one who understands and fits in with your needs and objectives. For example, some people prefer to use established names, such as Killik & Co., whilst others prefer the familiarity of their bank or building society. Others choose online companies. There is no right or wrong choice when it comes to making your decision, so go with whatever option you feel most comfortable with.
When selecting your stockbroker, you also need to consider the stockbroking service/s they offer. There are three different types: execution, advisory and discretionary.
If you have a good understanding of the way the stock market works, an execution only stockbroker may be best for you. This type of service allows you to make your own decisions and retain full control over your shares.
Those who are less confident may prefer an advisory service, which does what it says on the tin. Although the final investment decision will still lie with you, you will discuss your goals and willingness to take risks with the stockbroker, and they can help and advise you with regards to your investments.
For those who have no knowledge of shares, a discretionary management service can be the best option. This hands complete control to the stockbroker, who becomes responsible for your portfolio. Although your aims and risk threshold should be taken into account, the decisions will all be made by the firm on your behalf.
When making your decision, you will find that executive only services tend to be the cheapest. However, this does not necessarily mean that they will be the best for you. Always bear in mind your knowledge and goals to help you choose the right service.