To an outsider, the stock market can look impossibly complicated. Anyone who has ever fixed a car engine, filled out a tax return or kept track of the NFL rankings can attest, however, that apparently complicated things are often well within the ability of ordinary people once they make the effort to understand them. The key is not to look at the whole thing at once but to begin by focusing on just the parts that really matter, and then work out how they are affected by other parts. The stock market is not just the preserve of rich men in Armani suits whose cars cost six times the average salary. It’s something that anybody with a bit of spare money can invest in and – yes – profit from.
Investment portfolios
One of the more important keys to success in the stock market is to look at investments not as single entities but as part of an investment portfolio. Most people start with just one or two investments and that’s a sound strategy when finding one’s feet, but it’s not a good way either to acquire money or to keep it safe over the long term. A portfolio can be used to balance different types of investment to minimize risk while maintaining a satisfactory level of profit potential.
Setting up a portfolio that really works takes quite a bit of experience, so it’s a good idea to seek professional advice from a respected authority at the planning stage. This shouldn’t oblige the investor to set up a long term investment management relationship (though that may be highly advisable where larger amounts of money are concerned); in general, investors can decide for themselves how hands-on they want to be and what degree of management they would prefer to defer to others.
Different kinds of stocks and shares
Before deciding to start putting money into the stock market, it’s useful to know what’s available to buy. Generally speaking, stocks and shares can be divided into two types: common and preferred. Common stocks make up the vast bulk of what is available and purchasing them simply means exchanging some money for a share of a company’s profits, on the understanding that the company will use that money either to secure or to increase its profits. Preference stocks are those which also give the investor decision-making power within the company. These are generally only available where larger sums of money are involved and they don’t make a good early investment for most people as some business expertise is generally needed in order to take advantage of them.
Making decisions
When deciding which individual stocks and shares to buy, the single most important thing to do is research. It’s much easier to anticipate how well a company will do in the future if one knows how it has done in the past, how it has been faring recently and what it seems to be up to in business terms. For instance, whether it is planning to expand or to alter aspects of its core processes to take account of changes in technology. Understanding the sector in which it operates is also important. How are similar companies faring? Are there likely to be any problems in the supply chain in the foreseeable future? Is there a strong market for its products or services that seems stable?
Finding the right support
To make a success of investing, it’s important not only to get good advice but also to have a good, trustworthy broker. Investment managers can often advise on this and it’s well worth taking recommendations. In the interim, computer-based systems can be used, but the downside of these is that they tend to favor mass sales rather than bespoke investments, with consequently lower returns.
Prospects for 2015
The markets are strong this quarter and show no sign of slowing down, so 2015 is a good year to move into investing for the first time. Although there are concerns about Europe and China, the US is very much a bull market, with many commentators describing it as a return to the Nineties. The energy and technology sectors are looking particularly good and construction is just beginning to get interesting, especially in the area of green builds. Life sciences continue to do well, with an aging population driving demand and new innovators continually entering the market, while engineering is also on the up as the foundation for other areas.
Entering the market for the first time is always a little daunting, but 2015 presents many opportunities.
Featured image credit: Money growth concept/ShutterStock
