In this article i’m going to talk about how to invest in stocks to build wealth. I will talk about the types of due diligence you can do before deciding which stocks to invest in, how long you might want to hold them for, how you can hedge your positions and keep a balanced portfolio, and the different avenues through which you can invest in stocks including as regular asset purchases or broker accounts using leverage. Let’s get straight into it!
How to invest in stocks – why invest in stocks in the first place??
Adding stocks to your asset portfolio is a great way to build wealth. They generally increase in value over time and can generate income for you via dividend distributions. Many of the wealthy people you know of, including Warren Buffett, built their wealth by investing in and and accumulating stocks. After a period of time, the stocks gain capital value and they can accumulate to an enormous amount. Most of the pensions are invested in stocks. It is generally how wealth is built. So if you have decided you want to understand how to invest in stocks, what’s the next step? Let’s take a look!
How to invest in stocks – due diligence
OK, so you have decided that you want to built wealth by investing in stocks. What sorts of due diligence should you use, to decide which stocks to invest in? There are different approaches to this. You could keep an extremely balanced portfolio by buying into an ‘index’, or a few indices!. An example of this is the S&P 500 – you can purchase a contract like a share, based on the movements of the S&P 500. If the top 500 stocks in America increase on average, you will see a gain in your trading account. You can also receive dividends from buying into these indices. If you want to remain hedged and balanced in purchasing into indices, you could buy into the indices which are present in different countries, such as the FTSE 100, in the UK, the S&P 500 in the USA, the Nikkei 225 in Japan etc.
If you want to invest in specific stocks based on careful research, you can carry out fundamental analysis based on the company’s key published information which is usually found in the company’s financial statements. If it’s a publicly traded company, you can find the financial statements online. The analysis you can do is to look at the company’s profit statement and balance sheet – to see how healthy they are. If you do not understand how to read a company’s set of financial statements, don’t worry! We have articles prepared by an ex chartered accountant (me) that will help you, below. Navigate with the link below to the Fundamental Analysis part of this blog and you will find lots of helpful articles on understanding a balance sheet, understanding a profit statement, how dividends affect a share price, and more!
Fundamental Analysis – Trader Pro – Learn how to Trade the Stock Market
I am also sharing my videos on understanding a profit statement and balance sheet, here:
Another aspect of understanding a company’s financial position, is to understand whether it is a going concern, and will be for the foreseeable future. Please see my video on things to watch out for in a set of financial statements, here:
Aside from fundamental analysis, you can also undertake technical analysis from looking at the stock charts. I offer lots of guidance on how you can carry out technical analysis on this blog, here:
Structured course – how to trade the stock market – Trader Pro – Learn how to Trade the Stock Market
and you can watch me doing this on my Youtube channel, here:
Something that can really help you to understand stock charts, is by subscribing to the platform, Trading View. This platform is absolutely amazing for sorting your watchlists and organising your potential opportunities. I can offer a discount to the trading view software. Click the button below for the discount, while it lasts!
I’m showing you below a screen shot of my chart on the NASDAQ – it can be fully annotated with notes about significant events, just as one example of how versatile this chart software is!
I hope this resolved any queries you have on the due diligence aspect of ‘how to invest in stocks’.
How long should you hold stocks for?
OK, so you have decided you want to invest in stocks to generate wealth and you have researched using our tools on fundamental analysis, which stocks or indices to buy. Now you are wondering how long to hold them for. There is no set rule for this, but if you want to generate significant wealth, it is helpful to hold them for ten years or more. Please see my video on the power of compounding, here:
Holding stocks for over ten years can generate significant levels of wealth as they compound in value like a snowball. The answer to how long you should hold them depends on the level of wealth you want to generate. If you want to retire early as a millionaire, which is completely doable, you should hold them for over ten years. The younger you start, the better – ATTENTION, YOUNG READERS!
So how do you actually invest in the stocks?
You can invest in stocks either outright where you own the underlying asset, or you can buy through a CFD or spread betting account. Note the latter two types of accounts will attract fees for holding the positions overnight. There are many brokers that do not charge you for holding positions overnight such as Trading 212 (I have no affiliation with them but I do use them myself for holding long term positions without leverage).
If you hold positions in a spread betting or CFD account you are able to buy more assets than you actually have the cash for! I explain this on my margin blogs and videos, linked below. You will not own the underlying assets in these scenarios, so the dividends will be lower too:
Leverage and Margin – Trader Pro – Learn how to Trade the Stock Market
I hope you found this article helpful on how to invest in stocks. Perhaps if you did, you can leave a comment below. I would love to hear from you, and answer any questions you might have.