Gone are the days of stocks and stock trading being associated with older men in suits with briefcases. Thanks to online banking and a number of comparison tools, it’s worth for anyone to consider investing some money in stocks and looking at which stocks to buy now. It truly has never been easier to invest in stocks than it is today. All you need to do is open an online deposit account at a bank of your choice and keep track of your transactions.
But what exactly are stocks? How do you invest in stocks? And what do you need to consider before deciding to invest in a particular investment portfolio? In this article, we’ll explore these questions step by step.
What are stocks?
The stock market is a large marketplace for stocks, also known as securities. Any company listed on the stock market can issue stocks. In simple terms, the company “sells” part of itself to investors in the form of stocks. You don’t have to be rich to invest in a company – it’s common for people like you and me to be co-owners of large companies through stocks.
If the company is doing well, you as a stockholder may be given a percentage of the profits. This means you get a so-called dividend, which is your share of the company’s total distributed profit.
The stock market is determined by supply and demand. This means that the more investors want to invest in a company, the more in-demand that company’s stocks will be, and since there’s a limited supply of stocks, the price of those stocks will rise. On the other hand, stocks can depreciate. This can happen with companies that are either not performing very well or that get bad press.
Generally speaking, the stock market is rather volatile day to day, which means that your shares can gain value within a short period of time but can also fall in value. The good news is that well-diversified stock portfolios, which are invested long-term (over a period of at least five, ten or more years), have performed well in recent decades. Find out below how Inyova can help you to create this kind of stock portfolio, which is also based on investing in sustainable, socially responsible companies.
10 things to consider when buying stocks
Investing in stocks as a beginner can seem challenging to begin with. You might feel like you lack the experience, don’t understand economic analysis, and don’t have the time to assess potential developments in the stock market.
But this shouldn’t put you off. By considering the following, you can find out which stocks to buy, even as a beginner.
1. Set your preferences and adjust your stock strategy accordingly
It’s not that easy to decide which stocks to buy today. In any case, it’s important that you think about your personal preferences when it comes to risk-taking, sustainability themes, exclusion criteria and investment goals.
With Inyova, it’s simple. Using our easy online tool, you answer questions about your situation and choose the impact topics that are closest to your heart. Based on your preferences, our Personal Impact Engine creates a personalised investment strategy for you, and shows you exactly what stocks you can invest in..
But don’t worry, you don’t have to spend time looking laboriously at the company’s annual reports or quarterly figures in order to draw conclusions on the company. Inyova evaluates all of this information for you and monitors it continuously.
2. Diversify investments and distribute the amount saved appropriately
If you invest all your assets in the stocks of a single company, you’re fully dependent on the growth of that one company. Statistically, it’s more sensible to diversify your stock portfolio in terms of risk because losses of individual stocks can potentially be offset by gains of other stocks. Historically, this approach has generated around 6% average annual returns over the long term.
A well-diversified stock portfolio includes companies from various industries, currencies, regions and other variables. Your Inyova stock portfolio is diversified according to best practises, and is spread across thirty to forty companies based on varying criteria.
3. Invest long term
Long-standing stock market analyses show that stocks fluctuate in the short term. However, if you invested in stocks in the long run, say over the last five to ten years, these daily fluctuations make way for an upward trend over time.
The following example illustrates this. Suppose you had invested in the DAX (German Stock Index) companies in 2007, just before the global financial crisis – you would have made a loss of more than 40% in the first year. But five years later, in 2013, your stock portfolio would have generated an average annual return of 2.9% over the entire period. This means that, despite initial substantial losses, your portfolio would have recovered so well in just a few years that you would have come out with a significant increase overall.
4. Don’t be misled
In the context of stocks and other investments, there are a number of so-called experts who promise a very exclusive stock market tip with huge returns. But be careful! Guaranteed returns of 10%, 20%, or more aren’t realistic. Sure, there are some lucky cases of lucrative investment options where you make huge profits within a very short time. However, there is also a very high risk attached.Imagine going to the casino, playing roulette, and putting everything on one slot. You might certainly be lucky once or twice and win an incredible amount of money. But if you continue to play, your luck will soon run out and you’ll end up losing everything.
5. Invest sustainably
Sustainable investing means investing your money in accordance with social, ethical, and environmental criteria. So, when deciding which stocks to invest in, you’ll focus on companies that are champions in these areas.
You’re probably asking yourself whether it’s possible to invest sustainably whilst making a return. Looking at historical data, many studies demonstrate that sustainable investment portfolios have performed equally or even better than non-sustainable portfolios.
Inyova shows you how to do it – guiding you to invest in companies that solve the most important challenges of our time; companies that are resource-efficient and climate-neutral, committed to human rights and gender equality, and that make an important contribution to combating global poverty.
Your Inyova stock portfolio is fully aligned with your personal values and designed to build your wealth in the long term.
6. Be patient
Do you want to quickly gather the missing euros for your next summer holiday and are looking for stocks to buy to make a quick buck? It’s best not to. If history is anything to go by, you need patience and time to successfully invest in the stock market.
Those who chase quick profits tend to make high-risk investments and can end up losing their entire investment capital. Many decades of financial data show us that if you take the long-term diversified approach when investing, you have a much greater chance of a profitable investment. This doesn’t mean that your portfolio is not subject to large fluctuations in the short term, and it may even incur losses some years. However, several studies show that well-diversified stock portfolios, like those created by Inyova, have flourished over a ten-or-more-year investment period.
7. Stay flexible and only invest available capital
Do you already know that you’re going to buy a new kitchen next year? Or that a round-the-world trip is coming up? Money that is already budgeted for a particular purpose is less suitable for the stock market. That’s because it’s possible that you’re forced to sell your stocks at the worst moment. To avoid this, it’s better to invest only such capital that you can flexibly do without for the foreseeable future.
8. Avoid unnecessary costs
Those who are just starting to invest money in stocks are usually under the impression that the stock market is very fast-moving. Buy, sell, buy again and sell again. That’s the idea that many beginner investors have.
Despite all the analyses and statistics, this type of trading on the stock market is often driven by emotions. Investors tend to buy as soon as prices rise (fear of missing out) and sell as soon as prices fall (panic). Obviously, this strategy won’t generate good returns!
Buying and selling usually also comes with transaction costs. These costs can quickly eat into your return on investment.
9. Use compound interest
Let your money work for you! This sentence sounds so tempting that it’s too good to be true, right? Well, in fact, there’s the so-called compound interest effect that you can use for yourself. It’s actually pretty simple. If your invested money has made a profit, you can use these profits to invest on the stock market and make further profits. Compound interest is one of the most important mechanisms for increasing your wealth over time.
Albert Einstein even describes it as the most important force in the universe: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Time is the most decisive factor. Over time, with the help of compound interest, a small amount becomes a large sum… all by itself.
10. Take the first step
If you haven’t yet invested in the stock market, the first step is to change that. Not understanding enough about trading on the stock market and stock market price developments is a feeling many investors have at first. But the most important thing is find a good provider to guide you through the process – and then take the first step.
Inyova will help you choose a stock portfolio that best suits your individual preferences and is designed to add value in the long term.
But what stocks should you invest in now? – In a nutshell
The stock market is a big place, in which not only Wall Street gurus are investing, but also beginners like you.
If you want to build a long-term investment portfolio that is tailored to your individual needs, Inyova will help you. Just like you do, we place a special focus on sustainability and social responsibility.
Make your unique Inyova investment today and combine positive impact with financial returns. Inyova takes care of the in-depth analysis of potential investment targets for you, so that you can set up your individual investment strategy within just a few simple clicks.