If you’re new to the world of investing in the stock market, it can be challenging to navigate through the maze just to get started.
Step by step, here’s how I’d go about it today.
Choose your building blocks
I’m leaving aside the question of how you might allocate your capital to other asset classes such as property, bonds and cash savings. This article just considers the portion of your wealth that you decide to invest in shares and share-backed investments.
To simplify, you have three basic choices. You can invest in:
- Managed funds run by a fund manager or a team of managers.
- Low-cost, passive index tracker funds run mechanically to mimic an index or a particular group of shares.
- The shares of individual companies.
There’s merit in choosing either category, and a blend of all three can work well too.
However, we at the Motley Fool believe it’s possible to learn about investing and beat the performance of the general stock market by choosing shares backed by individual businesses. In fact, most of us have made a career of that conviction!
Tax-advantaged wrappers
You’ll need an account in which to run your portfolio and it’s important to make sure you choose something that will give you as much tax advantage as possible. So, I’d choose a Stocks and Shares ISA, or a Self-Invested Personal Pension (SIPP). It can work well to have both, if you have sufficient regular sums to invest.
And if you use up all your tax-free investment allowances in any period and want to invest more, I’d open a standard, no-frills, self-execution share-trading account. To quote an old investment maxim: “Don’t allow the tax tail to wag the investment dog!”
Education
I’m an investing junkie. I’ve tried to kick the habit, but it’s no use. I can’t.
But it’s not all bad. The more I learn about investing strategy and all things to do with the stock market, the better my investing becomes.
It can work for you too. You don’t have to be obsessive about it, but I would recommend that you get serious about making investing an absorbing hobby you’re prepared to put the hours into. Behave like a sponge. Go forth and soak up everything you can to help make you successful in the markets.
Research
Don’t buy just anything, such as the latest hot tip from a newspaper or some investing blog. Use your own analysis and make your own decisions. Listen to your own advice. And act on it.
After all, it’s your money and you, therefore, have the biggest incentive to invest it carefully. Remember the ‘education’ tip above before you dive in. But don’t be too timid because the lessons won’t really sink in until your money is on the line.
And I’d start with small amounts to test the water and build up your skills and confidence before committing more of your capital to the stock market. Good luck on your investing journey!
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