Everything beginners investing in stocks need to know

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The stock market offers a lot of opportunities for individuals to accumulate wealth, even for beginners investing in stocks. Since its inception centuries ago, investing in shares has proven to be one of the best wealth-building systems available to almost everyone. But that doesn’t make it risk-free.

Let’s take a look at the opportunities and risks beginners need to consider before deciding to start investing in the stock market.

What are the options available to a beginner investor?

With so many different strategies and financial securities available, it can be quite overwhelming for beginners first learning how to invest in stocks.

We’ve written a complete guide on answering this exact question. But as a quick summary, there are generally four ways to go about investing in shares that are generally considered suitable for beginners.

  • Index & Exchange Traded Fund – Investing in these types of funds will enable investors to instantly own a small piece of each company within the underlying index. This is a popular method of putting an investment portfolio on autopilot, matching the stock market’s performance in general. Here in the UK, an investor’s average return with this method each year is usually around 7-10%. Learn More
  • Mutual Fund – This is similar to an Index fund. However, instead of simply mimicking an index, a mutual fund will have an active investment management team that seeks to outperform the stock market, potentially unlocking higher returns at the cost of increased risk. Learn More
  • Individual Stocks – Funds enable investors to outsource the research process of stock investing to professionals. However, some individuals prefer to pick which companies they want to invest in directly. This approach carries the highest level of risk but can also unlock enormous returns if successful.

So, which method is the best for beginners? This is a highly personal question, and it ultimately depends on the individual’s investment goal. We’ve written a short guide to help new investors better understand the available options and which may be most suitable.

How can beginners investing in stocks stay informed? 

An investor who decides to pick stocks directly has to perform a lot of research and due diligence. But where can they find the relevant documents, financial statements, press releases, presentations, and analyses on stocks?

Fortunately, finding this information is actually rather easy today, even for beginner investors. There are countless professional news sources offering free insight. Meanwhile, every publically traded company has to file their accounts each year inside an annual report. These can be downloaded from their respective Investor Relations website and will cover everything from what the business does to how much money they’re making.

Reading, understanding, and analysing an annual report and other regulatory filings does take time and requires a decent level of knowledge to do. Being able to correctly assess the qualities of a business is a key requirement to being a successful stock picker. But not everyone is cut out for this, either due to a lack of interest, time or general knowledge.

The Money Cog Premium Service can help with this part of the process. And, of course, there are free articles published every week to keep on top of the latest developments of UK and US stocks so that investors remain informed.

Here is a list of other useful websites that enables investors to quickly find relevant information on stocks and shares:

Next steps for beginners

Finding amazing companies to invest in is only the first step. Designing and deploying an investment strategy that will help meet an investor’s financial goal while staying within their own risk tolerance is where the real challenge begins.

We’ve written a collection of free articles that cover this part of the process, and a complete Beginner’s Investment Guide is available to Premium Subscribers that comes with examples, spreadsheets, and step-by-step tutorials on diversifying and constructing a balanced portfolio.

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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.