News shows, Hollywood films, and TV all assume that you know what the stock market is and how it works. Everyone knows that you can make a lot of money in the stock market if you know what you’re doing, but beginners don’t often understand how the market works and exactly why stocks go up and down.

Here’s what you need to know about the stock market before you start investing.

What is the stock market?

Stocks, which are also called equities, are securities that give shareholders an ownership interest in a public company. It’s a real stake in the business, and if you own all the shares of the business, you control how the business operates. The stock market refers to the collection of stocks that can be bought and sold by the general public on a variety of different exchanges.

Where does stock come from? Public companies issue stock so that they can fund their businesses. Investors who think the business will prosper in the future buy those stock issues. The shareholders get any dividends plus any appreciation in the price of the shares. They can also watch their investment shrink or disappear entirely if the company runs out of money.

The stock market is really a kind of aftermarket, where people who own shares in the company can sell them to investors who want to buy them. This trading takes place on a stock exchange, such as the New York Stock Exchange or the Nasdaq. In years past, traders used to go to a physical location — the exchange’s floor — to trade, but now virtually all trading takes place electronically.

When news people say, “the market was up today,” typically they are referring to the performance of the Standard & Poor’s 500 or the Dow Jones Industrial Average. The S&P 500 is made up of around 500 large publicly traded companies in the U.S, while the Dow includes 30 large companies. These track the performance of the collections of stock and show how they fared on that day of trading and over time.

However, even though people are referring to the Dow and the S&P 500 as “the market,” those are really indexes of stocks. These indexes represent some of the largest companies in the U.S., but they are not the total market, which includes thousands of publicly traded companies.

Of course, you’ll need a brokerage account before you start investing in stocks. As you’re getting started, here are eight more guidelines for investing in the stock market.

How to invest in the stock market: 8 tips for beginners

1. Buy the right investment
2. Avoid individual stocks if you’re a beginner
3. Create a diversified portfolio
4. Be prepared for a downturn
5. Try a simulator before investing real money
6. Stay committed to your long-term portfolio
7. Start now
8. Avoid short-term trading

1. Buy the right investment

Buying the right stock is so much easier said than done. Anyone can see a stock that’s performed well in the past, but anticipating the performance of a stock in the future is much more difficult. If you want to succeed by investing in individual stocks, you have to be prepared to do a lot of work to analyze a company and manage the investment.

“When you start looking at statistics you’ve got to remember that the professionals are looking at each and every one of those companies with much more rigor than you can probably do as an individual, so it’s a very difficult game for the individual to win over time,” says Dan Keady, CFP, chief financial planning strategist at TIAA.

If you’re analyzing a company, you’ll want to look at a company’s fundamentals – earnings per share (EPS) or a price-earnings ratio (P/E ratio), for example. But you’ll have to do so much more: analyze the company’s management team, evaluate its competitive advantages, study its financials, including its balance sheet and income statement. Even these items are just the start.

Keady says going out and buying stock in your favorite product or company isn’t the right way to go about investing. Also, don’t put too much faith in past performance because it’s no guarantee of the future.

You’ll have to study the company and anticipate what’s coming next, a tough job in good times.

2. Avoid individual stocks if you’re a beginner

Everyone has heard someone talk about a big stock win or a great stock pick.

“What they forget about is that often they’re not talking about those particular investments that they also own that did very, very poorly over time,” Keady says. “So sometimes people have an unrealistic expectation about the kind of returns that they can make in the stock market. And sometimes they confuse luck with skill. You can get lucky sometimes picking an individual stock. It’s hard to be lucky over time and avoid those big downturns also.”

Remember, to make money consistently in individual stocks, you need to know something that the forward-looking market isn’t already pricing into the stock price. Keep in mind that for every seller in the market, there’s a buyer for those same shares who’s equally sure they will profit.

“There are tons of smart people doing this for a living, and if you’re a novice, the likelihood of you outperforming that is not very good,” says Tony Madsen, CFP, founder of NewLeaf Financial Guidance in Redwood Falls, Minnesota.

An alternative to individual stocks is an index fund, which can be either a mutual fund or an exchange traded fund (ETF). These funds hold dozens or even hundreds of stocks. And each share you purchase of a fund owns all the companies included in the index.

Unlike stock, mutual funds and ETFs may have annual fees, though some funds are free.

3. Create a diversified portfolio

One of the key advantages of an index fund is that you immediately have a range of stocks in the fund. For example, if you own a broadly diversified fund based on the S&P 500, you’ll own stocks in hundreds of companies across many different industries. But you could also buy a narrowly diversified fund focused on one or two industries.

Diversification is important because it reduces the risk of any one stock in the portfolio hurting the overall performance very much, and that actually improves your overall returns. In contrast, if you’re buying only one individual stock, you really do have all your eggs in one basket.

The easiest way to create a broad portfolio is by buying an ETF or a mutual fund. The products have diversification built into them, and you don’t have to do any analysis of the companies held in the index fund.

“It may not be the most exciting, but it’s a great way to start,” Keady says. “And again, it gets you out of thinking that you’re gonna be so smart, that you’re going to be able to pick the stocks that are going to go up, won’t go down and know when to get in and out of them.”

When it comes to diversification, that doesn’t just mean many different stocks. It also means investments that are spread among different asset classes – since stock in similar sectors may move in a similar direction for the same reason.

4. Be prepared for a downturn

The hardest issue for most investors is stomaching a loss in their investments. And because the stock market can fluctuate, you will have losses occur from time to time. You’ll have to steel yourself to handle these losses, or you’ll be apt to buy high and sell low during a panic.

As long as you diversify your portfolio, any single stock that you own shouldn’t have too much of an impact on your overall return. If it does, buying individual stocks might not be the right choice for you. Even index funds will fluctuate, so you can’t get rid of all of your risk, try how you might.

“Anytime the market changes we have this propensity to try to pull back or to second guess our willingness to be in,” says NewLeaf’s Madsen.

That’s why it’s important to prepare yourself for downturns that could come out of nowhere, as one did in 2020. You need to ride out short-term volatility to get attractive long-term returns.

In investing, you need to know that it’s possible to lose money, since stocks don’t have principal guarantees. If you’re looking for a guaranteed return, perhaps a high-yield CD might be better.

The concept of market volatility can be difficult for new and even experienced investors to understand, cautions Keady.

“One of the interesting things is people will see the market’s volatile because the market’s going down,” Keady says. “Of course, when it’s going up it’s also volatile – at least from a statistical standpoint – it’s moving all over the place. So it’s important for people to say that the volatility that they’re seeing on the upside, they’ll also see on the downside.”

5. Try a stock market simulator before investing real money

One way to enter the world of investing without taking risk is to use a stock simulator. Using an online trading account with virtual dollars won’t put your real money at risk. You’ll also be able to determine how you would react if this really were your money that you gained or lost.

“That can be really helpful because it can help people overcome the belief that they’re smarter than the market,” Keady says. “That they can always pick the best stocks, always buy and sell in the market at the right time.”

Asking yourself why you’re investing can help determine if investing in stocks is for you.

“If their thought is that they’re going to somehow outperform the market, pick all the best stocks, maybe it’s a good idea to try some type of simulator or watch some stocks and see if you could actually do it,” Keady says. “Then if you’re more serious about investing over time, then I think you’re much better off – almost all of us, including myself – to have a diversified portfolio such as provided by mutual funds or exchange traded funds.”

(Bankrate reviewed some of the best investing apps, including a few fun stock simulators.)

6. Stay committed to your long-term portfolio

Keady says investing should be a long-term activity. He also says you should divorce yourself from the daily news cycle.

By skipping the daily financial news, you’ll be able to develop patience, which you’ll need if you want to stay in the investing game for the long term. It’s also useful to look at your portfolio infrequently, so that you don’t become too unnerved or too elated. These are great tips for beginners who have yet to manage their emotions when investing.

“Some of the news cycle, at times it becomes 100 percent negative and it can become overwhelming for people,” Keady says.

One strategy for beginners is to set up a calendar and predetermine when you’ll be evaluating your portfolio. Sticking to this guideline will prevent you from selling out of a stock during some volatility – or not getting the full benefit of a well-performing investment, Keady says.

7. Start now

Choosing the perfect opportunity to jump in and invest in the stock market typically doesn’t work well. Nobody knows with 100 percent certainty the best time to get in. And investing is meant to be a long-term activity. There is no perfect time to start.

“One of the core points with investing is not just to think about it, but to get started,” Keady says. “And start now. Because if you invest now, and often over time, that compounding is the thing that can really drive your results. If you want to invest, it’s very important to actually get started and have … an ongoing savings program, so that we can reach our goals over time.”

8. Avoid short-term trading

Understanding whether you’re investing for the long-term future or the short term can also help determine your strategy – and whether you should be investing at all. Sometimes short-term investors can have unrealistic expectations about growing their money. And research shows that most short-term investors, such as day traders, lose money. You’re competing against high-powered investors and well-programmed computers that may better understand the market.

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Learning how to invest begins with learning how to invest in stocks. Historically, the return on equity investments has outpaced many other assets, making them a powerful tool for those looking to grow their wealth. Our guide will help you understand how to kick-start your investing journey by learning how to buy stocks.

Different Ways to Invest in Stocks

There is more than one way to invest in stocks. You can opt for any one of the following approaches or use all three. How you buy stocks depends on your investment goals and how actively involved you’d like to be in managing your portfolio.

• Invest in individual stocks. If you enjoy research and reading about markets and companies, investing in individual stocks would be a good way to start investing in stocks. Even if the share prices of some companies seem pretty high, you can look at buying fractional shares if you’re just starting out and have only a modest amount of money.
• Invest in stock ETFs. Exchange-traded funds (ETFs) buy many individual stocks to track an underlying index. When you invest in an ETF, it’s like buying stocks from a very broad selection of companies that are in the same sector or comprise a stock index, like the S&P 500. ETF shares trade on exchanges like stocks, but they provide greater diversification than owning an individual stock.
• Invest in stock mutual funds.Mutual funds share certain similarities with ETFs, but there are important differences. Actively managed mutual funds have managers that pick different stocks in an attempt to beat a benchmark index. When you buy shares of a stock mutual fund, your profits come from dividends, interest income and capital gains. Lower-cost index funds are mutual funds that work more like ETFs.

Keep in mind that there’s no right or wrong way to invest in stocks. Finding the best combination of individual stocks, ETFs and mutual funds might take some trial and error while you’re learning to invest and building your portfolio.

Choose How to Invest in Stocks

There are a variety of accounts and platforms that you can use to buy stocks. You can buy stocks yourself via an online brokerage, or you can hire a financial advisor or a robo-advisor to buy them for you. The best method will be the one that aligns with how much effort and guidance you’d like to invest in the process of managing your investments.

• Open a brokerage account. If you have a basic understanding of investing, you can open an online brokerage account and buy stocks. A brokerage account puts you in the driver’s seat when it comes to choosing and purchasing stocks.
• Hire a financial advisor. If you would prefer to have more advice and guidance for buying stocks and other financial goals, consider hiring a financial advisor. A financial advisor helps you specify your financial goals and then purchases and manages your investments for you, including buying stocks. Financial advisors charge fees, which can be a flat annual fee, a per-trade fee or a percentage of the assets they manage.
• Choose a robo-advisor.Robo-advisors are a simple, very inexpensive way to invest in stocks. Most robo-advisors invest your money in different portfolios of ETFs, and they buy the assets and manage the portfolio for you. They are generally less expensive than financial advisors, but you seldom have the benefit of a live human to answer questions and guide your choices.
• Use a direct stock purchase plan. If you’d prefer to invest just a few stocks, many blue-chip companies offer plans that make it possible to purchase their stock directly. Many programs offer commission-free trades, but they may require other fees when you sell or transfer your shares.

Keep in mind that no matter the method you choose to invest in stocks, you’ll most likely pay fees at some point to buy or sell stocks, or for account management. Pay attention to fees and expense ratios on both mutual funds and ETFs. Don’t be shy about asking for a fee schedule or chatting with a customer service representative at an online brokerage or robo-advisor to advise you on fees you might incur as a customer.

Accounts to Invest in Stocks

There are a variety of different account types that let you buy stocks. The options outlined above offer some or all of these different investment accounts, although some retirement accounts are only available via your employer.

• Retirement accounts: The two most common types of retirement accounts are 401(k)s and individual retirement accounts (IRAs). The former are only available from an employer, while anyone can open an IRA at an online brokerage or a robo-advisor. These accounts often offer tax advantages that incentivize you to save for retirement, but they also come with annual contribution limits. Other retirement account types include 401(b)s, SEP-IRAs and solo 401(k)s.
• Taxable investment accounts. The retirement accounts outlined above generally get some form of special tax treatment for your investments and have contribution limits. Proceeds from stock investments made in taxable investment accounts are treated as regular income, with no special tax treatment. Plus, there are no contribution limits.
• Education savings accounts: If you’re saving money for qualified education purposes, education savings plans allow you to invest in stocks, generally through mutual funds and target-date portfolios. These accounts include 529 plans and Coverdell Education Savings Accounts.

Depending on how hands-on you’ve chosen to be with investing in stocks, you’ll either set up your investment accounts through a broker (online or through your financial advisor), through your bank (for Coverdell ESAs), or through your employer (for employer-sponsored plans).

How to Fund Your Account

If you plan on buying stocks via a retirement account like an IRA, you might want to establish a monthly recurring deposit. For example, the 2020 contribution limit for an IRA is $6,000 for anyone below age 50, and $7,000 for anyone 50 or older. If your goal is to max out your contribution for the year, you might set a recurring deposit of $500 per month to meet that max limit.

If you’re buying stock through an employer-sponsored retirement plan like a 401(k), you’ll need to indicate what percentage of your pay or a flat dollar amount you want to be deducted from each paycheck.

For all other types of investment accounts, establish clear investing goals and then decide how much of your monthly budget you want to invest in stocks. You can choose to move funds into your account manually or set up recurring deposits to keep your stock investment goals on track.

Here are a few things to keep in mind as you set your investment budget and fund your account:

• Mutual fund purchase minimums. Many stock mutual funds have minimum initial purchase amounts. Be sure to research different options—Morningstar is a great resource—to find ones with zero or low minimums to start investing in stocks as soon as possible.
• Trading commissions. If your brokerage account charges a trading commission, you might want to consider building up your balance to purchase shares—especially individual stocks—until the commission only represents a small fraction of your dollars invested.
• Mutual fund fees: When buying a stock mutual fund, be sure to review what the “load” is on the shares you’re purchasing. Some mutual funds have an upfront or back-end sales charge—the so-called load—that’s assessed when you buy or sell shares. While not all mutual funds have loads, knowing before you buy can help you avoid unexpected fees.

Start Investing in Stocks

Select the individual stocks, ETFs or mutual funds that align with your investment preferences and start investing. If you’ve chosen to work with a robo-advisor, the system will invest your desired amount into a pre-planned portfolio that matches your goals. If you go with a financial advisor, they will buy stocks or funds for you after discussing with you.

Upon successful execution of your order, the securities will be in your account and you’ll begin enjoying the rewards of the stock market. And yes, your funds will reap dividends and experience losses as the economy changes, but for the long-term, you’ll be taking part in the sector of investments that have helped investors grow their wealth for over a century.

As you make your initial stock purchases, consider enrolling in a dividend reinvestment plan (DRIP). Reinvestment plans take the dividends you earn from individual stocks, mutual funds or ETFs, and automatically buys more shares of the funds or stocks you own. You may end up owning fractional shares, but that will keep more of your money working and less sitting in cash.

Set Up a Portfolio Review Schedule

Once you’ve started building up a portfolio of stocks, you’ll want to establish a schedule to check in on your investments and rebalance them if need be.

Rebalancing helps ensure your portfolio stays balanced with a mix of stocks that are appropriate for your risk tolerance and financial goals. Market swings can unbalance your asset mix, so regular check-ins can help you make incremental trades to keep your portfolio in order.

There’s no need to check in on your portfolio daily, so a monthly or quarterly schedule is a good cadence. As you review your portfolio, remember that the goal is to buy low and sell high. Investing in stocks is a long-term effort. You’ll experience inevitable swings as the economy goes through its usual cycles.

Many people put off investing because they think investing in stock market needs a lot of money to start. But, this is just not true. You can just start your investment with as little as Rs. 500/- per month. The key to create wealth is developing good habits like regularly investing small amount in share market every month. If you make a habit of investing regularly you will be in a much stronger financial position in the future.

You may come with a question like how to enter the stock market with little money?

There are various ways to start investing with little money and with the help of online and app based platforms it has made it pretty easier, all you have to do is to start somewhere. Just follow the below steps and learn how to invest in Indian stock market with little money:

• Decide on how you want to invest in stocks
• Know your goal for investment
• Open an investing account i.e. demat and trading account
• Set a budget for your stock investment
• Learn about stock market basics
• Start investing

How to invest in stocks for beginners with little money?

Here are some tips that should be followed by beginners:

• Set Long-Term Goals:

  Before investing you must know your goal and the likely time you may need fund in the future. Investing in stock market for a long term can result in good returns.

• Make up for the misses:

  Investing regularly requires commitment. All you need is to be regular and consistent. Saving a regular sum can make you profitable. If you could not save in the stipulated time this week, in the next week make up for it.

• Understand Your Risk Tolerance:

  Risk tolerance is also affected by one’s perception of the risk as by understanding your risk tolerance, you can avoid those investments which are likely to make you anxious.

• Control Your Emotions:

  You are bound to be emotional and overwhelmed when you first start investing in stock market as earning good returns may make you happy but losing money may hurt. Learn to never make your investment based on your emotions.

• Handle Basics First:

  Take time to learn the basics about stock market and the individual securities composing the market as knowledge and risk tolerance are linked- risk comes from not knowing what you are doing.

• Diversify Your Investments:

  Investment diversification protects your money from adverse stock market conditions as when it comes to investing, it is advised by savvy money managers that investors must invest money in various asset i.e. diversify their investments. It protects from losing all assets in a market swoon.

• Be realistic:

  Never invest with an expectation of earning quick returns, it is better to be patient and start your investment.

• Invest in Mutual Fund through SIP:

  MF is a long term investment which invests in various securities and builds wealth if invested for a long period of time. The investment just starts with Rs. 500 a month.

Historically, equity investments have enjoyed a return significantly above other types of investments options. On the other hand, it also provides easy liquidity, total visibility, and active regulation to ensure a level playing field for all. Investing in stock market is a great opportunity to build wealth for those who are willing to be consistent savers. Just make the necessary investment in time by increasing knowledge and enjoy the power of compounding. The younger you begin your investing avocation the greater the final results.

Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending. Legendary investor Warren Buffett defines investing as “the process of laying out money now in the expectation of receiving more money in the future.” The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.

Let’s say that you have $1,000 set aside and are ready to enter the world of investing. Or maybe you only have an extra $10 a week and you’d like to get into investing. In this article, we’ll walk you through getting started as an investor and show you how to maximize your returns while minimizing your costs.

What Kind of Investor Are You?

Before you commit your money, you need to answer this question: What kind of investor am I? When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals and what level of risk you’re willing to take.

Some investors want to take an active hand in managing their money’s growth, while others prefer to “set it and forget it.” More traditional online brokers, like the two mentioned above, allow you to invest in stocks, bonds, exchange-traded funds (ETFs), index funds, and mutual funds. 

Online Brokers

Brokers are either full-service or discount. Full-service brokers, as the name implies, give the full range of traditional brokerage services, including financial advice for retirement, healthcare, and everything related to money. They usually only deal with higher-net-worth clients and can charge substantial fees, including a percentage of your transactions, a percentage of your assets that they manage, and sometimes, a yearly membership fee. It’s common to see minimum account sizes of $25,000 and up at full-service brokerages. Still, traditional brokers justify their high fees by giving advice detailed to your needs.

Discount brokers used to be the exception but are now the norm. Discount online brokers give you tools to select and place your own transactions, and many of them also offer a set-it-and-forget-it robo-advisory service. As the space of financial services has progressed in the 21st century, online brokers have added more features, including educational materials on their sites and mobile apps.

In addition, although there are a number of discount brokers with no (or very low) minimum deposit restrictions, you may be faced with other restrictions, and certain fees are charged to accounts that don’t have a minimum deposit. This is something that an investor should take into account if they want to invest in stocks.

Robo-Advisors

After the 2008 financial crisis, a new breed of investment advisor was born: the roboadvisor. Jon Stein and Eli Broverman of Betterment are often credited as the first in the space. Their mission was to use technology to lower costs for investors and streamline investment advice.

Since Betterment launched, other robo-first companies have been founded, and even established online brokers like Charles Schwab have added robo-like advisory services. According to a report by Charles Schwab, 58% of Americans say they will use some sort of robo advice by 2025. If you want an algorithm to make investment decisions for you, including tax-loss harvesting and rebalancing, then a roboadvisor may be for you. Also, as the success of index investing has shown, you might do better with a roboadvisor if your goal is long-term wealth building.

Investing Through Your Employer

If you’re on a tight budget, try to invest just 1% of your salary into the retirement plan available to you at work. The truth is you probably won’t even miss a contribution that small.

Work-based retirement plans deduct your contributions from your paycheck before taxes are calculated, which will make the contribution even less painful. When you’re comfortable with a 1% contribution, maybe you can increase it as you get annual raises. You’re unlikely to miss the additional contributions. If you have a 401(k) retirement account at work, then you may be investing in your future already with allocations to mutual funds and even your own company’s stock.

Minimums to Open an Account

Many financial institutions have minimum deposit requirements. In other words, they won’t accept your account application unless you deposit a certain amount of money. Some firms won’t even allow you to open an account with a sum as small as $1,000.

It pays to shop around some and check out our broker reviews before deciding where you want to open an account. We list minimum deposits at the top of each review. Some firms do not require minimum deposits. Others may often reduce costs, such as trading fees and account management fees if you have a balance above a certain threshold. Still others may offer a certain number of commission-free trades for opening an account.

Commissions and Fees

As economists like to say, there ain’t no such thing as a free lunch. Though many brokers have been racing recently to lower or eliminate commissions on trades, and ETFs offer index investing to everyone who can trade with a bare-bones brokerage account, all brokers have to make money from their customers one way or another.

In most cases, your broker will charge a commission every time you trade stock, either through buying or selling. Trading fees range from the low end of $2 per trade but can be as high as $10 for some discount brokers. Some brokers charge no trade commissions at all, but they make up for it in other ways. There are no charitable organizations running brokerage services.

Depending on how often you trade, these fees can add up and affect your profitability. Investing in stocks can be very costly if you hop into and out of positions frequently, especially with a small amount of money available to invest.

Remember, a trade is an order to purchase or sell shares in one company. If you want to purchase five different stocks at the same time, this is seen as five separate trades, and you will be charged for each one.

Now, imagine that you decide to buy the stocks of those five companies with your $1,000. To do this, you will incur $50 in trading costs—assuming the fee is $10—which is equivalent to 5% of your $1,000. If you were to fully invest the $1,000, your account would be reduced to $950 after trading costs. This represents a 5% loss before your investments even have a chance to earn.

Should you sell these five stocks, you would once again incur the costs of the trades, which would be another $50. To make the round trip (buying and selling) on these five stocks would cost you $100, or 10% of your initial deposit amount of $1,000. If your investments do not earn enough to cover this, you have lost money just by entering and exiting positions.

Mutual Fund Loads

Besides the trading fee to purchase a mutual fund, there are other costs associated with this type of investment. Mutual funds are professionally managed pools of investor funds that invest in a focused manner, such as large-cap U.S. stocks.

An investor will incur many fees when investing in mutual funds. One of the most important fees to consider is the management expense ratio (MER), which is charged by the management team each year based on the number of assets in the fund. The MER ranges from 0.05% to 0.7% annually and varies depending on the type of fund. But the higher the MER, the more it affects the fund’s overall returns.

You may see a number of sales charges called loads when you buy mutual funds. Some are front-end loads, but you will also see no-load and back-end load funds. Be sure that you understand whether a fund that you are considering carries a sales load prior to buying it. Check out your broker’s list of no-load funds and no-transaction-fee funds if you want to avoid these extra charges.

For the beginning investor, mutual fund fees are actually an advantage compared to commissions on stocks. This is because the fees are the same regardless of the amount that you invest. Therefore, as long as you meet the minimum requirement to open an account, you can invest as little as $50 or $100 per month in a mutual fund. The term for this is called dollar-cost averaging (DCA), and it can be a great way to start investing.

Diversify and Reduce Risks

Diversification is considered to be the only free lunch in investing. In a nutshell, by investing in a range of assets, you reduce the risk of one investment’s performance severely hurting the return of your overall investment. You could think of it as financial jargon for “Don’t put all of your eggs in one basket.”

In terms of diversification, the greatest difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) in the first place. This will increase your risk.

This is where the major benefit of mutual funds or ETFs comes into focus. Both types of securities tend to have a large number of stocks and other investments within their funds, which makes them more diversified than a single stock.

Stock Market Simulators

People new to investing who wish to gain experience trading without risking their money in the process may find that a stock market simulator is a valuable tool. There are a wide variety of trading simulators available, including those with and without fees. Investopedia's simulator is entirely free to use.

Stock market simulators offer users imaginary, virtual money to "invest" in a portfolio of stocks, options, ETFs, or other securities. These simulators typically track price movements of investments and, depending on the simulator, other notable considerations such as trading fees or dividend payouts. Investors make virtual "trades" as if they were investing real money. Through this process, simulator users have the opportunity to learn about the ins and outs of investing—and to experience the consequences of their virtual investment decisions—without running the risk of putting their own money on the line. Some simulators even allow users to compete against other participants, providing an additional incentive to invest thoughtfully.

The Bottom Line

It is possible to invest if you are just starting out with a small amount of money. It’s more complicated than just selecting the right investment (a feat that is difficult enough in itself), and you have to be aware of the restrictions that you face as a new investor.

You’ll have to do your homework to find the minimum deposit requirements and then compare the commissions to those of other brokers. Chances are that you won’t be able to cost-effectively buy individual stocks and still diversify with a small amount of money. You will also need to choose the broker with which you would like to open an account.

A share market is a place where shares are publicly issued and traded. A share serves as a tradeable document that validates your ownership of a company. The share market is also where buyers and sellers exchange these documents. To facilitate the exchange publicly, a formal marketplace has been developed for investors to buy and sell their shares.

Share Market Investment for Beginners

To invest in stocks publicly listed on the market, you need to fulfil the following requirements:

1. Personal documents

• PAN Card
• Aadhaar Card
• Name on a cancelled cheque from your active bank account
• Proof of residence based on a list of documents that have been accepted by your stock broker, depository participant, or bank
• Account statements
• Passport-size photographs

2. Demat Account

A Demat account serves as an electronic house for your shares. Opening a Demat account is a hassle-free process conducted online or offline with the help of a depository participant. Many banks also offer Demat account services to their investors.

3. Trading Account

A Demat account and trading account go hand in hand. A trading account is used to buy and sell securities that you wish to trade on the stock market. Both Demat and trading account are mandatory for investing in the share market.

The Bombay Stock Exchange and the National Stock Exchange are primary exchanges where stocks are listed. However, some stocks may only be available on either one of these two exchanges. Hence, it is advisable to open your trading account with a depository participant who offers trading on both BSE and NSE.

4. Linked Bank Account

Linking a bank account to your trading account ensures a seamless flow of money in and out of your account as you trade. This is mandated by most brokers with whom you will choose to open a Demat and trading account.

Currently, you can find two-in-one accounts that serve as both a Demat account and a trading account. Some brokers also offer a three-in-one account where one can trade directly from their bank account and store their securities in the same location.

The Investment Process

The investment process differs when choosing to invest in the primary share market as compared to the secondary share market.

1.Investing In The Primary Share Market

A primary share market investment is made through an initial public offering (IPO). Once all applications for the IPO are received and counted by the company in consideration, the shares are allotted to investors based on demand and availability.

IPO application is made simple through your net banking account via Application Supported by Blocked Amount (ASBA). As an example of this process, if you have applied for shares that are worth ₹1 lakh, this amount will be blocked into your bank account instead of being sent directly to the company.

Once your shares are allotted, the exact amount is then debited with the balance being released. All IPO applications have to compulsorily follow this procedure. Once shares are allotted, they are listed on the stock exchange, and you can begin trading them within one week.

2.Investing In The Secondary Share Market

The secondary share market is where stock buying and selling action occurs between investors. Follow these steps to invest in the secondary share market:

• Open a Demat and trading account using your linked banking account.
• Log into that trading account.
• Select the shares that you wish to buy or sell.
• Ensure that you have the requisite amount of funds in your account to buy the shares.
• Next, decide the price at which you want to buy or sell a particular share.
• Wait for the buyer or seller to reciprocate that request.
• Complete your stock market transaction by paying for and receiving the shares or transferring the shares and receiving the money.

Final Words

The process of investing in stocks for beginners is quite simple. It’s crucial to be aware of your investment horizon and financial goals before you start investing in the stock market. Having advanced tools, expert recommendations and detailed real-time stock analysis data at your disposal as a beginner in the stock market is a huge factor towards risk minimisation. To avail of these benefits and more, open a Demat and trading account with IIFL today.