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What you need to know to invest in stock market

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What you need to know to invest in stock market

If you have decided that you want to become rich, then you would have realized that you need to invest your money wisely to achieve your goal. The stock market is one of the best options for investors to earn good returns and become wealthy. Now that you have taken a decision to invest in the stock market, you need to know what to do next and how to do it. There are many things that you need to be aware of before you start investing in the stock market.

The following are some of the important things you need to know in order to invest in the stock market:

1) The basic concepts of stocks and stock market

Some basic concepts about the stock market need to be understood. The market is traditionally a place where goods and bought and sold. In the same way, the stock market is where securities are bought and sold. There are various types of securities, stocks being the most prominent among them. Stocks can be bought from a stock exchange. A stock exchange is where the buying and selling of stocks take place, e.g.: New York Stock Exchange, NASDAQ, Japan Stock Exchange, Shanghai Stock Exchange, London Stock Exchange, Euronext, Bombay Stock Exchange, etc. Companies are listed with a stock exchange and offer their shares or stocks through the stock exchange.

A company that needs money for its new projects or expansion can go public and invite institutional investors and the general public to invest money. This is done through the stock market. Once the company is listed on the stock market, it offers shares for sale through an initial offering. These shares can be purchased based on the price offered by the company. Once the company is listed on the stock market, its market price is determined. If it is more than the price you bought it for, you have already made a profit.

Once a company’s stock is available in the stock market, it would be bought and sold regularly. There would be those who want to sell their stock for whatever reason. You can buy the stock from them. The price you buy is what is listed in the stock market. This is determined by demand. For instance, if the company is doing very well and announces a new project or a new deal, then there would be a great demand for its shares. The price of the share would shoot up and you need to pay more to buy the stocks of that company. If you already owned the company’s stock in this situation, you can sell it and earn a good profit.

However, if the company faces bad times, like disappointing business performance, or if the industry sector in general is not doing well, the price of the stock falls. The prices of stocks rise and fall constantly that is how the market works. Traders are those who keep monitoring these prices and keep buying and selling regularly to make profits. Since you are planning to invest in the stock market, you would be buying stocks for the long term. Hence, the day to day price fluctuation is immaterial for you.

2) Which stock to buy?

If you have knowledge about the financial market and are ready to put in time and effort for research, you can do it yourself. There are two tools that an investor needs. One is fundamental analysis. This is a tool that helps you analyze a stock based on factors like the economy, industry performance, company performance, and related factors. You would be using data from sources like financial reports, newspaper reports, journal reports, etc. to make an analysis. The idea here is to try to find out the strengths and weaknesses of the company. This can help you decide if a stock is worth buying.

The other tool an investor can use is technical analysis. This involves analyzing the statistical trends of a stock based on past performance. There are various tools using which you can analyze price changes and trends. Using this, you can try to decide if the stock is on an upswing or downswing, and then decide on whether you want to buy the stock or not.

There are many agencies that do fundamental analysis and technical analysis and you can refer to their reports (by paying a fee) and then decide which stocks are worth buying. If you have the knowledge, you can do the analysis on your own. Buying stocks involves risks and hence proper analysis helps you minimize risks and allows you to pick a winner.

3) Taking help of experts

If you are not the do-it-yourself type, but still want to invest in the stock market, then don’t worry! There are investment advisors who can guide you. They are professionals who know the stock market and do their own analysis. Based on the analysis, they can tell you which stocks to invest in. You would need to pay them fees for using their services. They can even manage the entire investment for you.

You must know that there is no guarantee that the recommendation of investment advisors will always be winners. That’s the reason you need to evaluate the track record of the advisors before deciding which advisor to work with. Remember – you are investing your hard earned money, so be careful whom you entrust your money with. You can also choose a robo-advisor to invest money, where a software picks stocks for you based on your investment goals. Here again, do your own analysis before deciding which robo-advisor to choose.

4) How to buy stocks?

Now that you have decided which stock to buy, the next step is to actually buy it. So, how do you buy stocks? Where do you buy it from? The answer is that you buy stocks from an exchange. The stock exchange has intermediaries known as brokers, who are registered with the exchange. You can buy stocks from a broker. The broker would have a terminal that connects directly to the exchange. The broker can carry out real-time transactions on the exchange using the terminal.

You can open a brokerage account or trading account, where you become the broker’s customer. There would be formalities for opening the account, which would include providing your details, completing documentation formalities, and you may have to link your bank account to the brokerage account. This would ensure easy financial transactions. Once your trading account is open, you can start transacting on it.

You can place an order with the broker to buy or sell a particular stock. The order can be placed over phone or you can do it online. In the earlier days, individual investors had to place orders only by phone or in person, Today, brokers offer online options to buy and sell in the stock market. Software would be available that you can use by logging in to the broker’s website or by installing it on your computer system.

When you have the online software, you would be given credentials to login to it. You can login and the software would show you stocks and their current price. Since you are not into trading, you need not worry about price fluctuations. Just place a buy order using the option provided. The quantity of the stock would be purchased and placed in your account. In this way, you can keep buying stocks and they would be added to your portfolio.

6) Going the mutual fund route

When you want to invest in the stock market, apart from buying stocks, there is one more option you can consider that is mutual funds. A mutual fund is where investors invest their money in a fund operated by a well-known company. The fund would be operated by a fund manager, someone with experience and expertise in the financial market. The fund manager uses the funds available to buy stocks. It would be the responsibility of the fund manager to analyze the market and decide where to invest money.

Instead of stocks, investors are allotted units of the fund. The value of the units would rise proportionately to the performance of the stocks owned by the funds. A good fund manager can ensure sizeable returns for investors. This is a less risky option as compared to stocks. This is because a professional fund manager does the investment and you can benefit from it. You can buy and sell mutual funds through a broker or directly with the mutual fund company.

There are various types of mutual funds. An index fund is like a replica of the stock market index. It invests in the same shares that the market index has. So its price movements are directly related to that of the stock market. There are various other types of funds available. You need to do some research on your own to understand the risk and returns of the funds before you decide which one to invest your money in. You can also ask an investment advisor to help you with this.

7) Dividend and dividend reinvestment

In the case of both stocks and mutual funds, the investor can receive dividends. The company whose stock you buy or the mutual fund company can share their profits with investors in the form of a dividend. Regular dividends can be expected from the top performing companies/funds. This can help you earn money from the stock market. There would also be an option of dividend re-investment, where instead of taking the dividend, you can choose to reinvest in. This will allow your investment to grow, so that you have a sizeable amount after some years.

8) Charges, commission, and taxes

When you invest in the stock market, you need to keep in mind that there would be various charges that need to be paid. Whenever you buy stocks, you would pay a charge or commission to the broker who is facilitating the transaction for you. This is called a brokerage and is a small percentage of the total value of the transaction. Similarly, when you sell a stock, there would be brokerage to pay. You need to consider this amount in your calculations. If you have 100,000 in your brokerage account, you will not get it all. You will get the amount minus brokerage. So, this is something you must keep in mind.

If you work with an investment advisor, they would charge either a fixed fee or a percentage of the sale in exchange for their services. This is also something for you to keep in mind. There may also be annual account charges that your broker may charge. These are things you need to know about, so you don’t get a nasty surprise later.

Then there is the taxman who is waiting to take his cut from your earnings. Taxes vary depending on local laws. When you sell the stock or mutual fund units and take out your earnings, you would need to pay taxes on it. This may be in the form of capital gains tax or income tax. This can be a sizeable amount and can reduce your overall earnings. You need to know the current tax rates and factor it. If for instance you need 100,000 for some purpose, you need to wait for your investment value to be 100,000+charges+taxes before you withdraw it.

9) Selling stocks

You can sell the stocks you own either when you need the money or when you feel you have earned a sufficient profit. When the market reaches an all-time high, you can book profits fully or partially. Later on, when the market comes down, you can invest money again in the market. You need to have investment goals when you invest in the stock market. These goals will help you decide when to sell your stocks/mutual fund units. You can also sell if you feel that the stocks are underperforming.

Investing

Revitalising the token market

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Revitalising the token market 1

By Gavin Smith, CEO at Panxora

With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?

Seed investor scepticism

Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.

During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.

Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.

To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.

Bridging the gap between token projects’ needs and early stage investors

To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.

Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.

Two sides of the coin

So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.

Gavin Smith

Gavin Smith

On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.

On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.

Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:

  • What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile.
  • How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
  • How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.

Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.

But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.

Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.

And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.

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Achieving steady returns in challenging times for later life planning

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Achieving steady returns in challenging times for later life planning 2

By Matt Dickens, Senior Business Development Director at Ingenious

The macro-economic conditions of the last five years have presented a relentless challenge for money managers seeking to produce consistent returns. It seems an all too distant memory that UK markets were caught in a happy period of low volatility and positive growth since the recovery from the financial crisis started in 2009. Enter 2016 and we have since found ourselves in an era of exceptional uncertainty. An acrimonious Brexit referendum and the following ambiguity, pressure on sterling, repeated challenges to the UK Government, a trade war between two of the world’s super-powers and now a global pandemic. All this as the world is going through a digital revolution.

Under these exceptional conditions, many investment strategies have understandably struggled to sustain the growth that investors had previously enjoyed without taking on elevated levels of risk and experiencing greater volatility and its associated negative impact. However, Ingenious Estate Planning has been operating alternative investment strategies for several years, which have produced a steady return with low volatility over this time as they possess little correlation to the main listed markets.

Real Estate

The affordable end of the UK’s residential real estate market has proven to be extremely robust during the recent uncertainty. The market benefits from some core fundamentals that have assisted it withstanding a lot of the pressures experienced by other sectors. Firstly, a large and sustained supply deficit. In 2018 the UK built 80,000 fewer houses than the actual requirement of 300,0001. This strong, inherent demand poses a clear investment opportunity to investors who can fund construction projects in the safe knowledge that there is an established demand on completion.

Secondly, this supply deficit has been recognised by Governments for several years and there has been a raft of policies enacted, all supportive of building more houses. For instance, the Help to Buy scheme has enabled many, often first-time buyers onto the property ladder. This scheme means there is a well-established and subsidised group of buyers ready to buy whenever developers complete construction. Thirdly, and more recently, the Government has acted quickly to identify the property sector as one that is key to the UK’s recovery from Covid-19. Through relaxing planning laws and offering stamp duty holidays, both the construction and sales market are being given valuable incentives that support an ongoing return for real estate investors.

Secured lending model

Despite these positive forces however, there remain some risks with investing in the property market, so a conservative investment strategy is key to protecting investors. Rather than take a 100% equity, or ownership, position in a house-builder, developer or single property, a portfolio-based, secured lending model, has a number of clear risk-mitigating benefits. For instance, by lending to a portfolio of developers, carefully selected on a project-by-project basis, and by earning a fixed rate of interest, rather than taking equity risk, there is inherently lower volatility in returns given the protection of a senior debt position on each development. Contracts set out clear loan terms meaning that regular interest is paid on the investment and upon final sale the repayment is made in full, all with the benefit of banking-style security protections. By contrast, equity investments and associated valuations can fluctuate over time as the asset price changes and so it is far more vulnerable to market conditions and sentiment, and ultimately any drop in value is suffered by the investor. In the lending model, any loss is initially felt by the borrower.

Benefits for estate planning

Ingenious Estate Planning Private Real Estate utilises this secured lending investment strategy. The Business Relief- qualifying service is commonly used by clients planning for later life. As savers and investors reach retirement and decumulation, they present wealth managers with a unique set of investment problems. Without careful planning, the start of this phase for many could signal the end of any capital growth and herald their savings being eroded to pay for life’s needs. Any investment offering both high volatility and potential drawdowns may therefore become unpalatable. And while many would wish to gift savings to their children to mitigate the risks to their beneficiaries of paying a hefty inheritance tax bill upon their death, the thought of losing both control and access to these savings when they may still need them, means many feel uncomfortable in taking that step.

However, this does not need to be a fate accepted by savvy investors and planners who can utilise a proven trading strategy that continues to both carefully and predictably grow their investment while also providing potentially full relief from inheritance tax.

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Getting ahead in 2020: Why building an emergency fund is the way forward

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Getting ahead in 2020: Why building an emergency fund is the way forward 3

By Shahid Munir, co-founder of MintedTM, an investment platform which allows individuals to buy and sell gold bullion.

2020 has forced a lot of changes, especially where personal finances are concerned; attitudes towards investment have shifted and financial security has taken priority. Knowing that high-risk investments won’t guarantee profit, individual investors are considering longer-term alternatives and opportunities to save. So, at a time when stock markets are volatile, where should individuals be investing their money for the best returns?

While no one could have predicted the coronavirus crisis or the widespread economic devastation that has come with it, tension has been growing across global marketplaces for some time. Back in 2018, there were talks of a financial crisis and, even before the pandemic, unsecured debt hit a new peak of £14,540 on average per household. Now, with the UK entering into the deepest recession on record, unemployment climbing, and government support dwindling, the true value of quick-access ‘emergency’ funds has come to the fore.

Whether it’s a failed MOT, a broken boiler, or redundancy, in the event of a financial emergency, individuals are less likely to have the time or inclination to research the options available; many may resort to quick-fixes such as a high-interest payday loans to get themselves out of a difficult situation. According to research from Which?, 30 percent of people earning up to £28,000 a year were unable to save during lockdown. However, as recovery gets under way, it’s clear putting money aside to cover any large, unforeseen expenses can help to preserve existing finances and keep stress to a minimum.

Shahid Munir

Shahid Munir

Despite there being plenty of investment options available, very few lend themselves to building an emergency fund. With government premium bonds currently yielding virtually nothing and interest rates on cash ISAs sitting far below inflation, what was once considered safe is not only under-performing but is costing investors money in the long run. To reduce risk, investors should be diversifying their portfolios and investing in cryptocurrency or physical assets such as gold. For example, gold Exchange Traded Funds (ETFs) are popular with some individuals because they provide an easy way of gaining exposure to any increases in the precious metal’s value, while still allowing easy access to the funds if they are needed

With new types of technology platforms offering easy-to-use mobile savings apps, individuals can look further than traditional ISAs and bonds and begin to start investing in precious metals, something that may not have seemed possible in the past. Being based on an average rate of return and outperforming inflation, gold isn’t just a safe haven risk-off asset, it’s a key step towards establishing a watertight emergency fund.

While many people are looking for innovative ways to maximise saving potential, it doesn’t have to be complicated. Often, taking a step back and considering both personal and financial objectives can work wonders. This may involve analysing personal expenditure, taking stock of any outgoings and gauging their appetite for risk. It is wise to work towards building an emergency fund that covers three to six months’ worth of bills and expenses or to save around 10 percent of an annual salary.

Treating an emergency fund like any other fixed cost on pay day and separating it from day-to-day bank accounts and transactions will make it easier to commit to investing. For example, taking advantage of any platform-specific features, such as setting up a minimum standing order, can take the pressure off investing a lump sum. Often, it’s easier to reach an end goal by saving smaller, regular amounts, and topping them up where possible – autosaving apps are a perfect example of how these costs can add up over time.

Kickstarting an emergency savings fund is one of the first steps investors can take towards financial health, future planning and getting out of any debt cycles. While gut instinct may tempt people to keep money in the bank, investment in physical assets, such as gold, offers individuals the opportunity to benefit from greater returns and peace of mind, providing that all-important safety net for whatever the future may hold.

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