Investing is an important step that every single adult should start at a certain point in their life. As the democratization of the stock market made financial instruments attainable for retail investors, more and more people rushed to have their spare allocated to companies they believe in. However, you need some basic knowledge to get started. Investing for beginners is all about understanding the basics.
The Easy Way
The easy way that investing for beginners can be resumed is by looking at index funds. You can invest in something like the S&P 500 without having to worry about anything. Financial experts decide which companies are worthy of being included in the index fund. They add and remove stocks from the index regularly. There is nothing that the investor has to manage except for how much money he decides to invest in the index fund.
The Harder Route
At the other end of the spectrum, there is the option to invest in individual stocks. It is something that no guide for investing for beginners advocates for. At the beginning of your journey, you should start with index funds and as you start to gain knowledge, you can slowly invest in individual stocks.
Before you invest in a single company, you need to understand what book value means, what is EBITA, earnings per share, P/E ratio, corporate debt, growth forecasts, and more. Understanding these essential financial metrics will enable you to understand if a company is worthy of investing in or not.
Another important aspect that you need to consider is what type of companies you want to invest in. Investing for beginners is all about starting with companies you understand. You need to understand their products and services, their growth potential, and their business model. Understanding these things makes the company predictable. You have a higher chance of guessing if the company will do well or not.