For the average Briton, investing in the stock market almost certainly seems like something best left to the professionals. Yet you don't have to be an economics expert or a City trader to buy and sell shares. Here are a few tips for beginners on how to get started.
What can you afford?
Before you even begin to think about investing, it's essential to take a good, hard look at your finances. Investments should not be seen as a quick-fix debt solution, and investors are advised to have their finances well under control before considering the stock market. You should always plan to invest long term, and that means the money may be locked away for five years or more. Lastly, consider your approach to risk. All stocks rise and fall, and therefore there is always an element of risk. The golden rule is to only invest what you can afford to lose - that way you won't be plunged into a financial crisis if something goes wrong.
Look before you leap
You don't need to be an economist to become an investor, but it is important to do some research before you part with your cash. There are many online resources, including forums, offering free information about stocks and shares, though it is always best to stick to reliable sources. An eye on the financial press may give you a few pointers as to any major 'themes', such as a rise in the middle classes in emerging markets, which could trigger a boom in the luxury goods market.
Similarly, consider your own experiences. Retailers or services that appear to be booming could point to a good investment opportunity. It may also be wise to invest in a range of sectors, as putting all your eggs in one basket increases the risk of losing out. Consider different types of business, asset classes and geographical areas, each of which may perform differently depending on the economic cycle.
As a DIY investor, you can either invest directly or indirectly in the market. The latter generally leaves the business of deciding what companies to invest in to a fund manager, but a direct approach, while perhaps riskier, will give you more control over your investment. Stockbrokers such as Charles Stanley or Redmayne Bentley offer bespoke investment services, and will provide tailored advice should you require it, but they will also charge for the privilege, so if you are confident about where you wish to put your money, an execution-only share dealing service is the way to go. There are plenty of online platforms where you can buy and sell shares through your own share dealing account, such as The Share Centre and Share.com, which charge on a per-transaction basis.
An eye on your investments
Once your money has been invested, you will almost certainly be keen to keep an eye on the market, and though you should think long term when investing, there is no harm in selling if you think the time is right. The financial press, for example, may reveal that a company's prospects have changed, whether because of internal restructuring, a possible merger, or even the rise and rise of a key competitor. That may be the time to get out.
It is also worth setting share price alerts to let you know when your shares are rising in value. If it seems as though they have reached a price that you perceive to be higher than their true value, that might be the time to sell. Furthermore, if all your cash is tied up in investments but you believe you have spotted a better opportunity, don't be afraid to sell and use that money to invest elsewhere.
Last but not least, don't panic when things go wrong. Investing is a gamble, and even the most knowledgeable and experienced investor will make mistakes occasionally. However, it is usually best to admit your mistakes, and should a particular share price fall dramatically, it is probably best to cut your losses and move on.
Remember, all investments carry an element of risk, and if you are in any doubt about where to put your money, it is wise to look to an impartial advisor for help.
Have you recently started DIY investing? What are your tips for beginners? Leave your comments below...