If you are looking for a way to grow your wealth in the long term, investing in the stock market is a good choice. However, for those who are getting started with investing, it can be overwhelming and daunting. In the UK, the main stock market is the London Stock Exchange and this is where public limited companies and other financial instruments, including government bonds and derivatives, are bought and sold.
Direct and Indirect Investing
There are two different ways that you can invest in the stock market: directly and indirectly. If you are choosing to invest directly, you are buying shares in a single company and becoming a shareholder. Though this is referred to as direct investing, you are still going to do your investing through a third-party broker. When you are getting started in direct investing, it makes the most sense to hold onto your stocks for a few months at a time without trading as constant trading will result in a higher loss.
The indirect approach to investing is often more popular as it spreads the risk by allowing you to invest in several companies. Typically, the money you are investing is spread between 50 to 100 companies and can be sector-, country-, or theme-specific. For example, if you choose to invest specifically in the financial sector, your money would be divided into stocks for different companies across the financial sector, and if one of those companies takes a huge loss you are going to be less affected than if all your money was in that one company.
Before You Get Started
Before you start throwing your money into the stock market, there are a few things you need to be aware of. As a starting point, you need to decide what your financial goal is and consider why you have chosen to invest and what your timescale is. Next, you need to consider what risk you are comfortable taking. While a higher-risk investment has the potential to have more growth, there is also the potential for more loss. If you are close to retirement age, you are likely going to want to assure yourself a steady stream of income, whereas if your investment is going to be in for more than ten years, you might be more willing to allow the market to fluctuate up and down.
Monitor Your Investments
Once you have started your investment, it is important to monitor your investments to ensure that they are performing the way you hoped they would. While you don’t need to check your specific stocks daily, it is helpful to watch the stock market overall. You can monitor the stock market news either online, through social media, or on an app on your phone just to be aware of what is going on with the stock market. You don’t need to manually consider your specific stocks more than every few months; in fact, checking them more often will likely just drive you crazy.