How to invest in stocks online: a beginner's guide

How to invest in stocks online: a beginner's guide
Table Content
What are stocks?
What are the main types of stocks?
What are dividends?
3 ways of investing in the stock market
5 Steps to start investing in stocks
Bottom line

Many beginners who want to start investing in stocks think that the stock market is only reserved for the elite. Some read wordy stock investing tutorials or watch long YouTube videos about how the stock market works and get confused due to complicated financial jargon. If you're a beginner looking to invest in stocks for the first time, our beginner's guide on how to invest in stocks online has all you need to get you started. 

What are stocks? 

Stocks are equity investments that represent a company's legal ownership. In simpler terms, when you buy a stock in a company, you become a part-owner of that company. That means you can get a share of the company's profits if it's performing well. 

You can invest in stocks of global companies and buy a stock of Apple, Tesla, Disney, or Robinhood stock. With Amana, you can also buy a UAE stock, invest in the Abu Dhabi stock market, the Saudi stock market, or the European stock market. 

What are the main types of stocks?

To raise funds, companies issue stock in two varieties: common and preferred stocks. The owner of common stocks gets price appreciation if the shares move higher in value from where they have bought the stock. But they lose if the stock moves lower from where they bought it. A company may or may not pay a dividend. If they do, that's also paid to the common stock shareholders. 

What are dividends?

Shareholders of common stocks can vote on corporate matters, with most companies allowing one vote per share. Some corporations also pay dividends to stockholders, providing a source of income and the stock's market value. 

A dividend is a small reward given to shareholders for investing in a company's stock, and it typically comes from the company's net profits. The dividend payments are usually revised based on the company's earnings. There's also the dividend yield - the annual dividend per share divided by the share price. 

3 ways of investing in the stock market

There are two primary ways of stock investing:

Invest in Individual Stocks 

Investing in individual stocks is the most basic method of stock market investment. One benefit of investing in individual stocks is the possibility of gaining high returns if you pick the right stock. 

Take Amazon as an example. If you invested $1000 in Amazon shares in 1997, that'd be worth about $2 million in July 2021. But keep in mind that gains are not guaranteed.

 You can easily make a mistake when picking a stock's short-term movement. It's generally better to focus on long term investment stocks.

You should also try and diversify by investing in multiple stocks. Most financial advisors advise keeping at least 10 to 15 individual stocks in your portfolio. 

Invest in Exchange-Traded Funds (ETFs)

ETFs are generally portfolios of stocks or a basket of assets. They're not actively managed as a mutual fund is and are usually cheaper methods to get diversified exposure in your stock portfolio. ETFs are highly recommended for investors who seek long-term success. 

Some ETFs are known as index funds since they invest in market indexes, such as the Russell 2000, S&P 500, or even industry- or country-based indexes.

One exciting piece of information is that ETFs don't impose so-called load fees (a fee or commission you pay to a sales intermediary or broker), which generally improves the funds' long-term performance. As a result, professional investment firms and robo-advisors frequently employ them to build investor portfolios. 

That should strongly indicate that EFTs are a good investment vehicle for beginners. 

Invest in Mutual Funds

Investors have greater purchasing power when they use mutual funds. These funds enable them to buy a variety of investments all at once, some of which would be impossible to acquire on their own. You even have the option to select target-date mutual funds, which concentrate your investments on the year in which you plan to retire.

5 Steps to start investing in stocks 

Step 1: Determine what kind of investor you want to be 

Your investment objectives and risk tolerance will guide you in determining which stocks to purchase and at what price. Consider your financial goals: buying real estate, producing income, maximizing capital appreciation, and more. Then calculate how much time you have to achieve your objectives. 

 

read more: how to invest in stocks online

What is risk tolerance?

Risk tolerance is generally considered the amount of money you can afford to lose on an investment or a trade in exchange for a higher chance of profit. 

What is market volatility?

Stock markets can go through periods of volatility, particularly in the short term. So, consider your objectives and timeline before determining what investment or trades to make and what value. The longer you can afford to keep your money in the market and at work, the more likely you'll receive a return on your invested funds. Although, past performance is no guarantee, and any stock can go down in value or lose all its worth. Do your research and invest in companies and products you understand and believe in. 

Once you've figured out your goal for investing, risk tolerance, and how much you want to invest, you can decide how you want to invest. 

Am I a hands-on Investor? 

A hands-on investor creates a portfolio by selecting investments on their own or with the assistance of a financial advisor. This option gives you more control over the structure of your portfolio as you're hands-on and actively managing your stock portfolio.

This method is used by people actively trading, researching, and engaging daily or weekly in their trading and investment accounts. A combination of single stocks and ETFs is most common for hands-on investors. 

Am I a passive  investor?

Passive investors generally don't choose individual stocks. Instead, they track the performance of specific stock markets or "indexes" like the Dow Jones Industrial Average, the S&P 500, or the Nasdaq 100. 

ETFs are a great way to invest in the big picture and expose your investments to the price moves of large baskets of stocks traded on the Nasdaq or S&P, for example. This strategy reduces volatility and provides a more consistent return over time, although with lower growth potential. 

Step 2: Open your amana account and get started 

You can open an account with amana for trading stocks, ETFs, and countless other trade instruments. Download our day trading app, complete your registration, and fund your account in a few easy steps. And then you're ready to tap, swipe, trade. 

Step 3: Determine the type of stocks you want to invest in 

Buying an individual stock isn't the only way to trade and invest in stocks. ETFs are another great example. When you think about what stocks or ETFs you want to buy, make sure you research the company and understand what they do, how they do it, and if you believe in their future success. 

Knowing the companies you invest in effectively ensures you keep away from a gambling mindset and act on an investment mindset. ETFs, like stocks, need a lot of research, and we believe they are the best way to diversify your portfolio. Understand what are the best ETFs to invest in and how much of your portfolio should be dedicated to ETFs versus single stocks. Ultimately, what you pick to trade and invest in should be based on your research, not a broker’s or web guru's next hot stock tip. Do your homework with amana. 

Step 4: Research and build a personalized strategy 

For long-term success, your ability to lower risks is essential. You can do that by researching the investments that best match your goals, diversifying your portfolio, and monitoring its performance. 

Here are some more useful tips:

  • Mix stocks with ETFs to give you a balanced risk profile. Make sure you think about your long-term objectives and what you can afford to lose in the short term if things don't go as planned.  
  • Consider consulting a professional financial advisor to discuss your overall long-term financial plan. This plan should include real estate, a rainy day fund, saving for other purchases, and long-term wealth generation.  
  • Monitor the performance of your stock investments after each quarter. Research and consider if your plans have changed for a particular stock or ETF. Don't be afraid to move some from an overperforming investment into another investment you've been considering, or perhaps one that's underperforming but that you still believe in in the long term. 
  •  If you're falling short of your financial objectives, reconsider if they’re realistic, and look at your portfolio and how you are allocating your funds. Perhaps you need a new plan with more modest expectations. Investing is not a sprint; it's a marathon. 
  • Stock prices will fluctuate due to circumstances beyond your control. But whether you do it independently or with guidance, managing your portfolio well is the best way to achieve hit your financial targets. 

Step 5: Think long-term 

You are ultimately responsible for your investments, even if you seek financial advice. So, avoid making hasty investing moves without considering how they will fit into your overall strategy.

  • Most people who try to pick short-term price movement in stocks, ETFs, or any financial asset, will get it wrong more than they get it right (almost 90% of the time). So, think long-term, do your research, and don't overanalyze the market daily. 
  • A quarterly review of your stock and ETF portfolio is generally a good habit. It also keeps you away from the day-to-day emotional moves of the market. 
  • Define your risk tolerance and stick to your master plan.

    read more: The introduction to financial market analysisThe introduction to financial market analysi

 

Bottom line

As you've seen above, investing in stocks is a complex process. And even though the profits can be huge, there's no such thing as safe stocks to invest in. 

That being said, trading stocks online can be a great way to invest in your future, protect your investments from taxes and inflation, and even grow your existing wealth. 

If you want to learn more on how to invest in stocks online:

  1. Check out our guide on Exchange Traded Funds.
  2. Keep growing your knowledge and take advantage of amana’s learning center, but don’t get overwhelmed by the amount of information.
  3. Take it one step at a time.
  4. When ready, download the Amana stocks app.
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