There is no minimum amount required to enter the stock market. Anybody with whatever money they got can start investing right away in the stock market. You can pump in new money, or reinvest the dividend money in order to grow your investment. The amount of money you make is directly proportional to the time invested in the stock market. Longer you stay with the stock market, the higher your growth potential.
2 - Money Making More Money
This is a classic case of money making more money. The more money you put to work, the more money gets earned. There are lot of blue chip stocks that has a great growth potential, and shares its profits to the investors every quarter in the form of dividends. Stock value goes up during good times and goes down during bad times.
3 - No Limit to Rewards
There is no limit on how high the stock can go. As long as the fundamentals are correct, the stock will keep raising up in value. This is applicable to both growth stock and dividend stock. When it comes to growth stock, the value appreciates more rapidly than the dividend stock, but dividend stock has an advantage to bring in cash flow from your investment. The cash-flow when effectively reinvested can grow even bigger investment in the long run.
4 - Liquidity
The biggest advantage of holding the assets in the form of stock is that it can be liquidated pretty easily. Often takes only a couple of mouse clicks to convert huge investment into cash, and vice versa.
5 - Tax Benefits
There are no tax liabilities just owning stock investment. Let me clarify, you need to pay taxes on dividends and other cash flow you receive from your investment, but there are no taxes for just owning the stock. There are no maintenance cost, no property tax to be paid etc., Cash you receive in the form of dividends can have tax benefits as well. Qualified dividends are subjected to lower taxes than the non-qualified dividends.
6 - Improves Emotional Intelligence
In most cases, it is like swimming against the waves. It is tough mentally and physically when the easiest thing to do is go with the flow, and follow the crowd. If you are a serious investor and would like to be in the market in the long run, you know that you should not follow the crowd. It takes great deal of emotional strength to buy stock when everyone is selling, and sell the stocks when everyone is buying. Emotional outcomes are not logical, and so every ten years the market crashes for no logical reason. This is logical time for the new investors to get in. The stock market is neither your friend nor enemy. It is a reflection of the economic condition of the country. It is a system created and maintained by humans. So it has the strength and weakness of a human being. You are better of using your emotion to think instead of thinking with your emotion.
7 - Cashflow
Dividend paying stocks provides a healthy cash flow for the investors. Dividend money is a portion of a Company’s earnings approved by board of directors to be distributed to the shareholders. Dividends are usually issued as cash payments either quarterly or on a monthly basis. Adding more stocks to your portfolio increases the cash flow from your stock investment. If planned and executed carefully, this can be a way to financial independence for long term investors.
8 - Power of Compound Interest
Power of compounding directly proportional to the duration of the investment. The key to the power of compounding is the snowball effect that happens when dividends and capital gains accumulate over a period of time to make your money grow faster and faster as the years go on.
9 - Beat Inflation
The best way to beat the inflation is to invest in stock market. Historically, stocks have averaged an annual return of over 10% which is much higher than the average inflation rate of 3.2%.
10 - Powered by Main Street
Wall street is not the enemy of main street. In fact, wall street depends on the prosperity of the main street. Wall street focus is on generating money, using money to make more money and globalize business and employment opportunity in order to save money, whereas Main street creates livelihoods, provides employment opportunity needs in the society and advances the human interest. It is the heart and soul of capitalism. Without the main street, wall street is like your shiny mobile phone without the software.
This is one of the common investing mistake even the so called professionals make stock in market. For most people it is hard to resist the temptation to ignore the stock when it is at all time high, or when it is at its 52 week high. Buying stocks at high price and selling when it falls is justified emotionally, but does not make sense logically. There is a potential loss of 10 -50% of the capital money due to this mistake. So wise up when you make your next investment.
2 - Going After Popular Stock
Going after the popular stocks is one of the biggest investment mistakes. Popular stocks includes stocks that are new IPO stocks, speculative stocks, big social media stock without any strong advertising revenue etc., These are sure ways to lose your money in a short period of time.
3 - Focus only on Short Term Growth
Traders usually focus on the short term growth, but a professional investors focus on their long term investment. In most cases, investors have a more stable growth combined with the force of the power of compounding make them better than short term traders. The saying, Slow and steady wins the race is so true when it comes to long term investors.
4 - Not Understanding Taxes
Stock owned for less than a year is considered short term investment, and more than a year is considered long term investment. Profits made by selling short term stocks are subjected to higher taxes than profits made by selling long term investment. Non qualified dividends are subjected to higher taxes than qualified dividends. Understanding tax consequences on your stock market activities is very important in building your wealth.
5 - Emotionally Attached Stocks
Getting emotionally attached to a stock is not a good idea. Emotion by itself is good and important. You should know how to use your emotion to think, and not think with your emotion.
6 - One Big Purchase
Volume purchase of stocks leads to a big swing between profit and loss in the short term, and loss of opportunity to lower the cost of investment in the long term. You can avoid unnecessary roller coaster of your emotion by not getting into the habit of buying lot of stocks at any point of time, instead spread the purchase over a reasonable period of time.
7 - Reacting to Day to Day News
Reacting to day to day news increases the trading activity. This will only make money to the brokerage firm, and nothing to your cause for building your wealth. Not all data is information. Some are informational and educational, and others are opinions and noise surrounding the news. Train to ignore the noise and avoid reacting to every news about the stock market.
8 - No Plan
Having no plan is worse than having a bad plan. To begin with, just having a plan about your goal, growth trajectory and a exit strategy stabilizes your mental strength and your emotional intelligence. This provides an opportunity to improve the plans based on the situation and the circumstance of your beings over an extended period of time thereby testing out the plan at good and bad times. Having a plan reduces the possibility of losing money during panic times and increases a healthy profit during good times. Exit strategy is very important even when you don't have any plans to execute it. My advice to you is, have a plan.
9 - Not Questioning Assumptions
Assumption can lead us in any direction. A valid assumption can improve the confidence level in taking an educated pick of long term investment, whereas a wrong assumption can lead to loss of capital and self worth. Always question your assumption and validate your assumption at all times.
10 - Follow the Crowd
Following the crowd is the easiest way to lose lot of money in a short duration of time. In most cases going against the crowd can save you lot of money and help you grow your investment aggressively. There are no short cuts to wealth generation. Do not follow the crowd. The loss is not just your money, but to your identity as well.
Use any of the following online trading company to create your account. The online transaction fees to trade stocks ranges from $6.99 to $9.99 per transaction.Some requires minimum deposit, and others not require any deposit to open an account. All the them provide some sort of access to real-time streaming of stock quotes. So choose the company that you are comfortable, and create an account.
I use TDAmeritrade account for buying/selling stocks.
Step 2: Start building your wealth
Login to the account, and navigate to the section where you can buy and sell stocks. The below screenshot shows a typical form to buy/sell stocks. First choose the transaction type - buy/sell option. In most cases fields such as Quantity, Symbol and Price are the only required fields to enter in this form.
Things you should know about this transaction.
Quantity: It is the number of stocks you are planning to buy or sell in this transaction.
Symbol: It is the ticker symbol of the company you are going to buy or sell. For example, Lets say you are interested in buying AT&T - You will enter the ticker symbol T as your choice. Do your research before investing in any stock. On top of my head is AT&T stock. I chose AT&T because, it is currently trading at a fair price of $32.77 per share. It gives an healthy return on investment in the form of dividend yield. To be more specific, it gives out $0.47 per share to the investors every quarter, or a healthy 5.74% dividend yield on the money you invested.
Order Type: The details of the various options of order type are as follows.
Limit
For buying, it is the highest price you are willing to pay for a stock.
For selling, it is the lowest price you are willing to sell a stock.
The order will only be executed when the market price (i.e , current price of the stock) reaches your limit price or better.
Market
You use the market order to execute(buy or sell) immediately at the current market price of the stock. In most cases, the order gets executed as soon as you submit the hit button.
Stop Market
Stop market order is typically used to limit the amount of money that a stock could lose by defining a specific price to exit the investment. It can also be used to help define a price to enter into a new position.
Stop Limit
Stop limit orders are made up of an activation price, as well as a separate limit price. As the market price of the stock meets or exceeds the activation price, the limit price will activate.
Trailing Stop %
Trailing stop order help protect gains or limit losses on a stock using a point-based parameter that automatically moves with the direction of the stock price. Trailing stop orders can only be used to close out of a position.
Trailing Stop $
In this case trailing stop parameter is in dollar amount.
Review your order and submit the form to complete the transaction. Once done, You are officially an investor! Congratulations on your first investment.
Step 3: Grow your investment.
Invest and reinvest more to grow your investment. If you have done your home work, and picked up a good company, the stock price will go up every year pushing your investment much higher, and you will have a positive cash flow every month or quarter in the form of dividends. Try to reinvest the dividend by buying more stocks. In this case, the dividend money is a qualified dividend, so it is subjected to lower taxes when filing for your tax return. Learn about the tax and its consequences when selling stocks for huge profits.
2 - Money Making More Money
