Stock Market Trading For Beginners [2021]

Stock Market Trading For Beginners [2021]

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When I first looked into trading stocks, it was for one purpose and one purpose only, to make money. I’ve been investing in the stock market now for over 25 years. I have lived through multiple bull and bear markets and can safely say that I have a good pulse of the current markets, the trends and how to put together a successful stock market investing strategy. That’s why all the information in this stock market trading for beginners article is focused on helping to jump-start your stock market investment journey.

Be sure to watch my YouTube video below on stock market investing for beginners.

The most important thing is being educated, having the knowledge, data, facts and making the best investment decisions possible such that you can achieve your financial goals. Make sure you read this article all the way to the end as it contains essential information on stock market investing planning, definitions, trading, taxation and the overall foundation you need to start your stock market investing journey today.

Where to begin in investing in the stock market

This all depends on what your goals are. Are you looking for a nice nest egg when you retire? Are you more interested in the profits that you can take today? Or, Are you interested in generating passive income from dividend investments? There are so many factors that come into play when putting a plan together for yourself. It is very important that you take into consideration your current age, risk tolerance, time horizon and the above else, goals you plan on achieving through your stock market investing. 

To be successful in the stock market over time you need to be consistent with your investment strategy. That means that you need to implement practices such as diversification and dollar-cost averaging. For more information on both of these concepts, please check out the links below to my YouTube videos on these topics. 

The plan for the plan

To be successful in anything you have to start with a plan. You’re investing your hard-earned money and you want it to work as hard as it possibly can for you. The most valuable asset you have in investing is time and with stock market investing, time can translate into substantial wealth if planned things out accordingly. Start with the current monthly budget. If you don’t have a budget in place, debt under control or solid credit, please check out all material around this first. Be sure to check out my personal finance pages, free monthly budgeting tools and guides so you can set aside the money you need to start investing in the stock market. This way you can maximize your monthly cash flow, have a solid financial foundation so that your stock market investments can grow in a healthy way. Next, you need an emergency fund in place for any unforeseen financial surprise life might throw at you. 

Everything starts with a plan

Ok, now let’s talk about the fun stuff, the actual investment plan. Your goals are important. For most people, those goals should be solid, year to year returns based on the overall market averages. How much you should invest should be divided between retirement accounts and traditional brokerage accounts. I will dive more into each further in the article. Once you have an understanding of how much you can set aside every month in total from an investment standpoint, you will set things up so that they invest automatically in your investments. Next, you want to have the end state in mind. Are you looking to cash out in a year, 5 years, 10 years or 40 years? Are you looking to load up your investments and just pull passive income through dividends? Planning your exit or the end state is just as important as planning the overall investment itself. Let’s dive into some of these principles now and a how-to put a solid plan in place after we go after some key stock market investing terms and definitions.

What is a stock?

Stock in its simplest form gives you fractional ownership rights to a corporation. This could be a privately held or publicly owned company. Ownership in a stock entitles you to your given portion of the corporation’s assets and profits.

Here is an actual stock certificate from General Motors Corporation. 

General Motors Corporations Specimen Stock Certificate

History of stocks & first stocks issued

The earliest known records of stocks go back to the Roman Republic, wherein the Roman Forum, over-the-counter shares of businesses were sold and traded with public investors. The Dutch by far were the financial innovators that paved the way to the modern markets that we know today. The Dutch East India Company was the first modern company to issues shares of its stock to the general public. They also offered an amazing dividend averaging around 18% over their 200-year run. If you want to learn more about dividends and dividend investing, I will have a link in the description section below on this video. They were also the first company to be officially listed on a stock exchange. They performed their Initial Public Offering IPO in 1602.

What is an IPO?

An IPO or initial public offering is simply when a company decides to sell its shares to the general public through a stock exchange. The intent of this event is for the company to raise capital from selling its shares to the general public.

What is a Stock Exchange and the Stock Exchange?

A stock exchange is a place where stockbrokers and traders buy and sell securities. The securities could be in the form of stocks, bonds, and other financial instruments. The first modern exchange was the Amsterdam Stock Exchange and you guessed it, that’s where you could trade shares in the Dutch East India Company. Examples of stock exchanges today include the New York Stock Exchange, the Nasdaq and FTSE. The global aggregate of these exchanges is considered the overall stock market or markets.

What is a stock index?

An index is a group of assets used to track the performance of a given industry, sector or overall market. An example of this is the Dow Jones or the Standard & Poor’s 500, otherwise known as the S&P 500. The S&P 500 is typically used as a monitor of the overall health of the US stock market. It is comprised of some of the top 500 publicly traded companies in the United States and is often considered the benchmark to brokers and fund managers on their trading performances.

What is an EFT and a Mutual Fund?

An ETF or Exchange Traded Fund is often a low-cost investment vehicle that has an aggregate of companies’ stocks all lumped together into one fund for you to trade. They typically have low management costs due to their passive nature. Mutual Funds on the other hand are actively managed and tend to have higher fees.

For more information in regards to Mutual Funds and ETFs, click on the link to the SEC guide.

What are Dividends?

Another way to make money in stocks or funds is through dividends. Simply put a dividend is a way a company can share its earnings with its shareholders. So, if you happen to own a stock or a fund that offers a dividend let’s say the stock is worth $100 and it offers a 5%, over the course of a year you will be paid out $5 for owning that stock. Please be sure to watch my video on dividend investing. If you want to learn more about dividend investing please watch my YouTube video below on dividend investing and download my free dividend investing calculator to get your dividend investment portfolio going today.

Dividends could be subject to taxation. Please click the link to the IRS website for additional information.

How to buy, sell and trade stocks?

SECURITIES INVESTOR PROTECTION CORPORATION (SIPC) protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. Click here to learn more information.

Today it is easier and cheaper than ever before to purchase stocks. There are more options now than ever before when it comes to selecting a brokerage investment firm to open an account with. Some of them offer completely $0 cost trades, trading from your mobile phone, off-hours trading, vast funds that you can select from and world-class portfolio management solutions. My favorite investment platforms are Webull and M1 Finance. Both options are great, but again depending on what you’re looking for and what your plan calls for, one might be better than the other for you. If you’re looking for an automated Robo advisor, set it and forget approach to investing, then M1 Finance is for you. If you’re looking to pick individual stocks, funds and you want to flexibility to day trade at will, then Webull is definitely the better pick for your stock market investment needs.

#1 Rated Robo Advisor & Dynamic Portfolio Rebalancing

#1 Rated Robo Advisor & Dynamic Portfolio Rebalancing

The M1 Finance investment, retirement account and technology are simply amazing. They even offer dynamic re-balancing, full customization and even some pre-built portfolio options called expert pies. M1 Finance is a strong recommendation for your automated investment and retirement needs. Try them today with only as little as $100 to start investing.

M1 Finance custom pies

#1 Rated Investment Brokerage Platform

#1 Rated Investment Brokerage Platform

Today it is easier and cheaper than ever to purchase stocks. Some of them offer completely $0 cost trades and you can do this straight from your mobile phone. My personal recommendation is Webull. It offers all the above plus some of the most amazing stock and fund information at your fingertips. The platform is free so download it today and give it try.

Webull App Phone

How to make money from stocks?

The most basic way is through capital appreciation. All this means is that you buy a stock at a given price and over time the stock goes up in value and then you sell it for a profit. Remember the old saying, buy low and sell high. The difference between your purchase price and the sale price will either be called a capital gain or loss, depending on if you sell it higher or lower than what you initially purchased it for. Another way to make money in stocks is with passive income dividend investing that I mentioned earlier. A dividend stock and fund could go up in value as well so you can make both a profit from capital gains and passive income from that same dividend investment. Typically through growth stocks or stocks that have strong projected growth for their companies do not offer dividends. People invest in them because they anticipate they will have a strong capital appreciation over a given period of time. On the other hand, established companies are more likely to share their profits with you in the form of dividends. So plan your investment strategy accordingly for either growth, passive income or both in the overall investment portfolio. 

How are you taxed on your profits, losses and dividends?

At the end of the year, you will need to collect all of your security sales and dividend income for tax purposes. There are short-term and long-term dividend gains that are treated differently from a tax standpoint. Short term capital gains are typically higher and are applied when you sell a stock for a year of less from your initial purchase. The gains will be considered short term. Short-term capital gains are taxed at the same as your usual tax bracket. Long-term gains tax rates are tied to your taxable income and filing status. Please reference the IRS website for the latest information on short-term or long-term capital gains or you can always consult with a licensed tax professional.

Your securities are subject to short-term or long-term capital gains taxation. Please click the link to the IRS website for additional information.

Stock market investing research tools

The two methods to evaluate individual companies and funds are called qualitative and quantitative analysis. Usually, the best results are derived from a combination of the two methods. Qualitative is when you almost listen to your gut as per se, or you go with non-numbers-based information to help make a decision. Looking at a companies historical track record, their overall ethics and who their leadership is are all examples of qualitative analysis. Quantitative analysis again focuses on the numbers. Examples of quantitative analysis include the company’s balance sheet, sales, profits, stock or fund chart analysis just to name a few. Most investors weigh the quantitative metrics more in their investment decision process than the qualitative ones. There are two amazing free platforms that provide some of the best qualitative and quantitative data out there and the best part of all they’re free! Atom for the first time provides you institutional-quality resources that were once only available to Wall Street professionals. Tradingview is by far the best free charting and data analysis tool in the industry. I use them both and they are critical in my investment decision-making process. 

#1 Rated Investment Research Platform

#1 Rated Investment Research Platform

Link your existing investment account(s) for free and have access to some of the most powerful stock and fund research in the world. You will have access to the institutional-quality resources that were once only available to Wall Street professionals. If you want to make smarter, data-driven investment decisions then you have to try Atom today.

atom app 1

#1 Rated Charting Platform

#1 Rated Charting Platform

If you are interested or currently conduct any type of chart analysis then you have to use TradingView. I have used both their free and premium tiers. The charting options are pretty much endless. I love using TradingView along side Atom to help provide me the detailed insights and intelligent decision making to plan out my investment portfolio. 

tradingview chart white Phone

Summary

Everyone needs to find a way to have their money work for them, whether it is real estate, stocks or some other type of investment. Investing in the stock market over time can you provide you strong returns and even passive income through dividends. Putting together an investment plan, investment tools and choosing the right investment brokerage partner are all critical for your stock market investing success.

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Frank Makrides

Frank Makrides

Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.

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