6 Important Things You Should Know Before Investing in Stocks

by Gily Tenorio on May 30, 2012

in Stocks

Investing in stocks is gaining popularity in the recent years because many people now are looking for ways on how to make more money out of the cash they have. Stocks can be scary for most people because of the notion of big loss of money when you invest in it but it should not be the case.

The fear in investing in stocks is associated with the lack of knowledge on how stocks works and how an investor could earn from it. Once you have the right mindset and knowledge about stocks, you will not be afraid in investing your money.

In this post, I would like to point out several important things that you should know before investing in stocks. This would help you out in your preparation prior diving into the water.

1. Stock is a High Risk Investment

Investing involves risk, meaning, you may lose money in the process. However, if you carefully study what you’re investing and hold it for a longer time, losing money will be very minimal.

Therer is no guarantee that you will make a profit when you invest in stocks. It is not even guaranteed by your stock broker or any one else because no one can predict what will happen to the stock market, they can only assume what will be going to happen based on the current statistics and the past performance of the company.

Remember that you should invest in stocks at your own risk. Therefore, it is very important to carefully study which stock will give you the highest return based on its financial statistics and valuation from other analysts.

2. Discipline and Patience are Needed

Two characteristics that you should have when investing in stocks are discipline and patience. You must have discipline to stick with your goals and not affected by the bad report or news about the stocks you are investing.

Patience is needed during the period of investment because you need to wait for months or even years before you could actually make a good profit from stocks. Think of stocks as a long term investments perhaps for more than 5 to 10 years.

3. Don’t Monitor Your Stocks Everyday

After buying the stock that you want, don’t monitor its price every day. I would suggests look at it once a week because there is a higher tendency that you’ll be afraid when its price is going down and sell it right away.

You have to be patient and wait until your target price is reach and sell it when that time comes. It is not also good for you to monitor its price during the trading hours since you can use your time in other productive things, unless you want to buy or sell the stocks you are holding.

4. Invest in Stocks Little by Little

Most of the online stock brokers in the Philippines require an opening deposit of P25,000 or around US$600. Even you’re in the US or Canada, you can still invest in Philippine stocks by first opening a stock broker account in CitisecOnline, BPI Trade or First Metrosec.

At first, you need to have that amount of money so you could open an account. In the succeeding addition of money to your account, you can even put P1,000 or less.

However, you can only buy few shares of stocks with that P1,000. In my experience, I normally buy the stock I want with a minimum amount of P8,000 to P10,000.

investing in stocks

Why? In order to maximize your purchase because every time you buy, there is a corresponding fee that you need to pay. There will be also a fee when you sell your stock.

If you don’t have a big amount of money, you can invest in stock little by little. Some investors apply the cost averaging method wherein they put a certain amount in stocks each month or quarter.

They will use that money to buy the stock they are investing regardless of its price. In the same way, you could also do it if you don’t have any idea on the investing strategy that you want to follow.

5. The Longer, the Better

Investing in stocks is not good for short term investors, it is best for people who want to invest their money in longer period. Although, there are also many people who sell stocks for short period of time, it is very advisable that you buy and hold stock for longer period of time especially those that gives consistent dividends.

People who trade stocks every day are called traders and its their job to that. They have many tools and long years of experience in day-trading of stocks so they know when to sell or buy stocks and when not to buy or sell stocks.

You have to hold to your stocks until the target price you want is reach. This may take several months or even years to happen so you must be patient and wait until that time.

6. Study and Research the Stock you Want to Buy

I think the best investment advice I can give when investing in stocks is understand what you buy. Meaning, you should study and research first the details of the stocks you are planning to buy before you put your money into it. There are many resources online that you can use to research and understand how the company behind that stock is earning money.

In addition, many blogs and news sites are also giving information and education on how to pick a good stock, the terms that you need to know, some recommendations and a lot more. However, be very careful not to place your 100% trust on them because they also make assumptions.

Final Remarks

Investing in stocks gives a good opportunity to earn more profit from the money you have. Instead of putting all your money in the bank, why don’t invest some of it in stocks, those stable and profitable stocks.

 

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About the Author:

GilGil Tenorio is a blogger, a husband, a father, and an active Christian. He likes playing guitar, C.S. Lewis, Plants and Zombies and NBA. Follow him at Facebook, Google+, YouTube and Twitter. Thanks!

 

 

Image Source: FreeDigitalPhotos.net

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{ 2 comments… read them below or add one }

Michael March 3, 2013 at 06:36

For mutual fund of PhilAm Strategic Growth Fund, are you aware how much is the transaction fee?
I would like to know if it is better to invest 1k twice a month or 2k a month.

Reply

Gil March 5, 2013 at 21:37

Hi Michael,

Normally the transaction fee is around 1-2% of the money that you will use to buy the MF. Therefore, it doesn’t matter how much you will invest each month. The fee would be the same for both.

Reply

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