Investing For Beginners
There are so many businesses in which you could potentially invest; it can be an absolute minefield for the beginner. This article is intended as a very basic guide to taking your first steps into investing.
If you fancy dabbling with some stocks and shares, there are some basics you need to know first. Once you have found a company you are interested in investing your money in, make sure you check out the company's annual report to see if their shares are worth buying. The more information you can gather the better and it is crucial for you as an investor to take time to learn all you can about the stock market.
Then you need to learn how to value shares and there is no particular way of doing this with different techniques involving the price/earnings ratio and divided yields. Once you learn how to value shares you can spot a good upcoming business from one where the shares are overly expensive, even though the company may be doing well. If existing investors are already buying shares, it pushes the price up, making it difficult to make a profit, so avoid jumping on the latest bandwagon.
Start with a practice portfolio -- don't buy shares with real money but pick your shares and follow how they perform over six months or so and you will learn a great deal about stock market investing and whether you are any good at it. You could find you have a real knack.
You have to consider your attitude to risk because if you are too cautious, you should decide whether stock market investing is the best strategy for you as it is inherently risky.
Rather than pick your own stocks, you could try an index-tracking fund first, which tracks the performance of the index that it is based on. Trackers are a simple and cheap way to pick shares. They will also track markets in other countries, for example, if you choose a FTSE 100 tracker, you will be investing in all the top 100 UK companies.
For the beginner, wishing to choose a good pension fund to invest in, managed funds could be a compromise between investing directly in shares and tracking but it is important that you use a successful fund manager who has shown the ability to outperform the market. If you choose somebody with a good track record, they can pick shares on your behalf, but beware that many fund managers don't actually perform as well as trackers. It is worth spending time researching good fund managers or find other investors who can recommend someone. Any fund manager will charge a fee for their skills and probably a setup charge when they begin investing on your behalf.
Naturally, there are no guarantees with stock market investments but if you play a long game -- five years plus -- rather than go for short-term investments, you are more likely to be successful, especially since share prices can be very volatile. The most important thing to remember for any novice investor is that investing in the stock market is always a risky business. The golden rule is to never invest more than you can afford to lose.
Finally, if you have debts, you are unlikely to earn more from your stocks and shares and you would be paying interest on your debts so make it a priority to clear out your stats before investing.