Although some people spend a lifetime studying how to be a great investor, learning the basics of stocks and shares isn’t all that difficult. Shares of stock are the building blocks of the ownership of public corporations. Each share represents a slice of the total ownership of a company. When you buy a share of stock, you’re buying into the future growth or decline of the firm, so choosing wisely is a much better idea than buying a stock your neighbor or friend at work thinks is the next best thing.
Write out your goals in clear, reasonable and concise terms. According to the National Endowment for Financial Education, every investment plan should begin with a clear idea of the goals you’re trying to accomplish. This will allow you to avoid trying to learn about the thousands of available stock and share investment options and only focus on those that impact your particular situation.
Learn how stocks are categorized. Investment screening tools lump investments by company size. Investment analysis site Morningstar lumps the smallest 10 percent of stocks as small-cap. These are usually volatile investments, so they’re best used with very long-term goals, as are international stocks. The next largest 18 percent are considered mid-cap companies and are less volatile than small companies. Large companies are characterized as the largest 72 percent of all domestic U.S. companies and are considered the least volatile, but still should be paired with goals longer than five years away.
Decide which types of stock best fit each of your goals. Because you’ve listed your goals, it should be easy to decide which type of stocks fit best for each goal. Work to buy a few different stocks for each goal to diversify your portfolio. You don’t want to watch your goal disappear when an investment takes an unexpectedly bad turn.
Create a watchlist of stocks to learn how shares react to market conditions. Investment guru Peter Lynch recommends starting out by listing companies that you admire. By tracking what you know, you’ll be able to better understand changes within a company and product cycles that may turn a firm from favor with investors. Follow the charts of these stocks to see recent price trends. Read news about these companies to follow management and product changes.
Enroll in a stock market game or fake-money trading site to begin learning to buy and sell shares without risk. If you’re worried about losing money while you learn, try buying a few shares from your watch list on a financial game site. This will help you get your feet wet by tracking a few firms and pressing the “buy” button without worrying about profits. Most online brokerage firms offer pretend-money trading options.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.