A Normie’s Guide to Investing

So, you have seen your friends talking about stocks and shares, and you are wondering, how do I also learn how to invest and fit in the group? Well, you are in the right place bucko. Today, we will be guiding you to the top of the sky, where you might either fall flat on your face or reach the moon.

Investing, by theoretical definition, is buying assets that increase in value over time and provide returns in the form of payments. However, if you wanted to know the definition of investing, you would have probably just searched on Google, or even the new software kids these days use called Cat GPT or something like that but you don’t want to do that. You want to learn how to invest in the stock market and how to make your money work. You want to gain passive money so that whenever you meet Warren Buffet you can tell him that you are making money while you sleep just like he said:

Throwing a disclaimer before we start: I am not a financial advisor and this is not financial advice. You are liable for your own mistakes and losses and should probably seek out a professional for this purpose. My aim is to try and provide you with all the knowledge I have.

0. Be Sure You Want to Invest

You might have watched a lot of YouTube videos and more investing blogs before coming to this one, so you might already have internally agreed to invest. However,  for some of the normies out here for whom this is their first blog, let me tell you this champ, investing is tough. You might experience gains but you also might experience losses. The market is super hard to predict and even Warren Buffet is not the know-it-all when it comes to that. Be aware of what you are getting into and educate yourself about it and just know that it is not all flowers and gardens up here.

1. Financial Goals

Now that you have finally decided you want to step up in the investing market, it is time for you to decide your financial goals. So basically you have to determine whether you are looking for long-term investment goals or short-term. You need to examine what you are going to spend this money on, whether it’s to buy a new PlayStation 5 or buy a house in the upcoming years.

2. Decide Your Budget

Before you start investing, you must decide how much you want to invest in the stock market. Now you must be thinking, isn’t it obvious, I want to invest every single penny I have in my bank account? Well, that’s where you are wrong. You do not want to do that and I will elucidate as to creating an emergency fund is essential later in the guide.

You should decide how much you are comfortable with investing, and how much you want to earn. The more you invest, the more you might earn.

3. Risk Tolerance

After deciding your financial goals and your budget you should now decide your risk tolerance. Risk tolerance is the amount of risk you are willing to take for a higher return. Some assets are more volatile than others and you must decide whether you are comfortable enough to invest in them.

You might get a higher return if you are willing to take more risk, but at the same time, the asset you invest in would be more volatile which might make you more susceptible to higher losses as well.

4. Emergency Fund

Now that you have decided on your risk tolerance, you are ready to invest. Nonetheless, before you start investing you should put some funds aside for emergencies as you might have some unexpected expenses and the transfer of those assets to cash might take some time depending on the asset you have invested in.

You should have an emergency fund because let’s say you invest in the hypothetical great almighty stock Aerotyne, the cutting-edge high-tech firm that operates from their garage. However, a problem arises: your anniversary is coming up and you need to plan a surprise for your partner. The problem is you have invested everything you had in this stock but the stock has gone lower, You are sure it will come back but will take some time. Now, if you had an emergency fund you would not have a problem, but now you would have to sell the asset at a loss to get the money. So be sure to have some funds for emergency times so that such obstacles can be dealt with.

5. Choose a Brokerage Account

Now that you are finally ready to invest, you must decide what brokerage account you want to go with. Several different firms offer brokerage accounts. You can go with traditional brokerages, fintech brokerages, or others, and decide what you would prefer and whose fees, customer support, etc. would you prefer.

6. Select Investments

Now that you have a brokerage account, you would be wondering what stocks should invest in, there are so many. Well worry not, for there is the Internet where you can research the stock you would want to invest in. You could research a company’s financials, performance history, industry trends, and more. With these details, you can decide whether you would want to invest in the company or not.

There are also ETFs (Exchange-traded funds) or Index Funds which are typically less risky than individual stocks to invest in and are considered easier to get started in to build your portfolio.

7. Be Sure to Diversify

You are now ready to choose your investment types and what you want to invest in. You should not forget to diversify. Putting all your eggs in one basket might not be that great of an idea. Be sure to diversify and invest in other types of stocks and assets.

8. Monitor and Adjust

After you have selected your investments, be sure to regularly review them. Make adjustments wherever needed. The market fluctuates at all times and it is your responsibility as an investor to rebalance your investments to match your desired goals.

To encapsulate this, investing in the stock market can be a powerful tool for building wealth and achieving your goals in personal finance. Just remember, that investing involves risk and it is possible to lose money. The key to investing is to be patient and not make hasty decisions as those might lead to losses and higher risks. Be sure to consult a financial advisor whenever in doubt as they might be able to guide you based on your financial goals and risk tolerance.