A guide on how to start investing for new pandemic investors
Millions of beginners chose to start investing and trading during the pandemic. If you were one of these, or you’re thinking about taking the plunge, here is what to watch out for.
Did you start investing over the pandemic?
Newcomers hit the investment & trading scene
A recent survey undertaken by Charles Schwab revealed 15% of its clients started trading or investing during 2020 at the height of the pandemic.
A mixture of more time at home and access to trading and investment platforms has led to an upsurge in new retail clients. The bulk of these newcomers are still planning on staying investors and traders after the pandemic subsides.
Interestingly, while there has been a considerable rise of youngbloods investing in Millennial’s preferred assets like cryptocurrency and the so called meme stocks, the mix of newcomers isn’t entirely dominated by younger investors. From Boomers, Gen Xers, and Millennials, there is healthy interest amongst most adult age groups.
What’s more interesting is that Investopedia research suggests a third of pandemic investors knew nothing about investing or trading prior to opening their first position.
If you wish to join them, there are some basic principles that could help you at the start of your journey.
How to start investing in stocks
To start investing in stocks and shares, you’ll first need to know what they are and why you are investing.
The act of investing is buying an asset to keep in the hopes that it will gain value over a long period of time.
A stock, also known as an equity, is security that represents ownership of a small percentage of a company. Units of stock are known as shares. By owning them, you become a company shareholder, and are thus entitled to a proportion of a company’s potential profits appropriate to the number of shares you own.
Some pay dividends, i.e. a share of company profit, but other businesses prefer to reinvest profit back into the company.
It’s a common misconception that investing is only for people who have millions to spend. You can start from a low base. However, investing carries risk of capital loss, no matter how much you choose to sink into different assets. The value of your investment can rise or fall. Be mindful before making any deposits or committing any capital.
Other asset classes to invest in
Of course, stocks are not the only asset to invest in. Plenty of options are available to you. Amongst the most popular financial assets are:
- Commodities – Oil, natural gas, crops, metals and so on
- Gold – A traditional store of wealth and a relatively stable investment
- Forex – Foreign currency
- Cryptocurrency – Digital currencies like Bitcoin and Ethereum
- Mutual funds – A collection of assets overseen by a financial manager
What about trading?
Trading is similar to investing but is based around short term activity. With trading, you do not own the underlying asset. Instead, you trade on the asset’s price movements using products like Contracts for Difference (CFDs) or activities like Spread Betting.
Also, unlike investing where you want your asset to increase its value over time, trading means you can speculate on an asset’s price failing. This is known as shorting.
Trading allows you to get market exposure for a fraction of an asset’s total value. Brokers like Markets.com offer leverage, which allows you to trade on margin. That means you only have to place down a small percentage of how much an asset is worth to open a trade.
With trading on margin, you can potentially make some big wins. However, it would mean any losses would be magnified too, making it a riskier endeavour than simply investing.
Mistakes to avoid if you want to start investing or trading
Investopedia’s recent research into the pandemic investor surge suggests 56% of newcomers weigh their portfolios too heavily in favour of a single asset. Most successful investors and traders ensure they have a diverse portfolio.
Diversification is important because it helps mitigate risk and gives balance to your trades. Even if you’re looking at how to start investing in shares, it’s important to have a broad base of stocks across different sectors. That way, if one sector is performing badly, you can use others to hedge against potential losses with gains from other stocks.
It’s important to also consider different assets, not just equities, when putting a portfolio together too.
Doing little to no research
When getting started with how to invest in stocks, it’s massively important to do your research. Investing and trading comes with a risk of capital loss. There are lots of factors at play that affect stock’s price, but there is a lot of information available to you to help you make a research-based decision prior to committing any money.
There are lots of ways to do your due diligence and research. Fundamental and technical analysis, for instance, is used by many successful investors when they pick stocks. These look at fundamental aspects of a stock, i.e. how the company is performing financially, and the technical, such as price trends over time.
You can also use the multitude of tools available to you on our trading and investing platforms, including powerful charts and sentiment indicators, to help you decide.
While we cannot advise you on which assets are worth spending your money on, we can say it is better to do research than go in blind. Fail to prepare and prepare to fail. So, read up on things like company performance, check earnings reports. Has there been any management or personnel changes? What are the broader market conditions? All these will give you a better picture on whether to invest or not.
Emotion-led decision making
This pairs with the above. Investopedia’s look into new investors’ habits reveals that just over a quarter of pandemic players are trading or investing on gut feeling alone. It’s not advisable to do that.
Experience may lead you to be able to spot trends down the line, but if you’re just about to start investing, do as much research as possible. Try to not let yourself be ruled by emotions. Investing is a long-term process. Spontaneity and knee-jerk reactions should be avoided.
Careful research and patience are what separates a successful investor from a mediocre one.
Taking investment advice from unreliable sources
No one can definitively tell you how to spend or invest your own money. Everyone’s circumstances and attitudes to risk are different.
Recently, with the rise of the Reddit forum /r/wallstreetbets and meme stocks (GameStop, AMC, etc.), more and more investors are turning to untrustworthy corners of the internet to get advice. It can be tempting to hop on the bandwagon and pour cash into flavour of the month equities.
Always take their advice with a grain of salt. YouTubers and influencers are often seeking to aggrandise themselves, grow their audience, and ultimately make money for themselves.
Instead, if you are seeking analyst opinions, look for reputable sources, such as the Financial Times or CNBC. Speaking with a reputable financial advisor can also help but, as if you were looking at assets to add to your portfolio, always ensure you’ve researched them thoroughly beforehand. Look at their client reviews and so on.
How you can start investing with Markets.com
At Markets.com, our Share Dealing and Investment Strategy Builder services allow clients to start investing at their own pace.
Asking yourself how to start investing in shares? Click here to learn more about our investment services.
Please note: these services are only available in certain jurisdictions.