Stock Investment in 7 Easy Steps

Stock investing is a fairly simple task. Many people who just could not get started may just be because they do not have the motivation to do so. Take a look at these 7 simple steps to stock investing.

Stock investing is a fairly simple task. Many people who have not started investing will usually say that either they do not know how to or that stock investing is very hard to start off. I had personally been through that phase and understand fully what it takes to start off in the journey of stock investing.

After being on this journey for a few years now, looking back, I see that stock investing is actually a simple task. It just needs 7 easy steps to start investing.

Know What to Invest

There are many stocks available for investing but what should you invest in?

Understanding your investment objective is important. Are you investing for your retirement or do you just want to earn more money? What is your investment period?

Stocks can be broadly be classified into two kinds: Growth and Dividends.

Growth stocks are company stocks that tends to grow in capital value than yield in dividend payouts. Dividend stocks on the other hand has better yields than the growth in capital value.

If you are currently young and have a good number of years before retirement, you can consider owning a portfolio with more growth stocks. However, as the years goes by, do readjust your portfolio accordingly to increase more dividend stocks in your portfolio.

Finding the Right Broker

There are many brokers available and choosing the right one to put your money with can be confusing. If the wrong choice have been chosen, changing a brokerage firm can be tedious and might even be a fee to transfer your current holdings between brokerage firms.

So how to know which brokerage firm is the right one?

First and most importantly, having a regulated brokerage firm is an assurance that your money is safer with them as compared to an unregulated one.

Fees and commissions are paid to the brokerage firms for the services they provide to you and these fees and commissions can shrink your profits.

Regulated and fees are not just the two things to note when finding the right brokerage firm to trade with. Do take some time to compare between various brokerage firms before deciding who you would want to trade with.

Opening an Account

After you find the right brokerage firm, naturally the next step will be to open an account with them. This is the most “difficult” step of the 7 steps.

Before I opened my first investing account, I had already done my research, know what I want to invest in, derived a strategy, etc. But what I was missing out is the action of going down to the brokerage firm that I had chosen to open my account. There was so much resistance until a friend of mine had to drag me down and opened my first account!

Understanding the Business

Investing is like buying a business. A business man would have already done his homework to understand the business well before parting their money in buying the business.

Likewise, as an investor, we should understand what the business does, what is its prospect, etc, before clicking on the “buy” button.

This step should be done no matter how big, or small, the investment is.

Selecting the Company

After going through the business of several companies, selecting the company to invest in is the next step.

This is the time when you will have to weigh the pros and cons between buying two companies. Reminding yourself your investment goals will be important especially if you are choosing between companies from different industries.

Once you understand what each and every company business is about, it should be easier to decide which company to invest in. To make things easier, just do a comparison between two companies at a time. Have a checklist on what is important to you.

Buying the Stock

The easiest step in the whole. Select the stock to buy, enter the quantity and price to buy and click on the “buy” button.

Reinvesting the Dividends

In the event the stocks in your portfolio do pay dividends, it would be better to reinvest your dividends to purchase more shares.

The benefits of reinvesting your dividends can be found in one of the previous post here.

The Bottom Line

Stock investing is not a task which is not achievable. In fact, stock investing can be relatively simple. Just follow the 7 simple steps and you will be on your way to invest for a better future.

Are there any other steps to be included? Do let me know by commenting below.

Trading Update (December 2015)

Second month into my Forex trading. Things did not go well and I had lost a huge chunk of my trading investments. Although it is going to be tough, I will continue to press on. Looking at what went wrong, learn the lessons and move on.

Trading did not go well for my Forex. I have lost a huge chunk of my initial investment. The amount that I have left in my account is currently at 1,257.76. Lost a total of $3,742.24 or 74.84% of the initial investment. Not a very good way to start off my trading journey.

What Happened?

One important step to do in investing and trading is to review the trades, whether they are successful ones or those that we lost. Review of trades is overlooked by many investors and traders as many feel that we should quickly move on especially for the ones we lost. However, the importance of trade review allows us to understand what did we do wrong, why did the trade moved against us and finally how we can do better.

The first month I started trading Forex again, I closed the month down by around $1,500. That left my account with around $3,500.

In December, during the period when Fed was announcing the interest rate hikes, there were opportunities to enter new positions and very soon, I had opened up 5 new positions totalling up to 20 lots. With each lot at 0.5 mini, I had unknowingly opened up 10 mini-sized ($100,000) positions.

With Oanda’s margin requirements 2%, the total margin that I will require for the 10 mini-sized positions will be $2,000. Because of the volatility during December, very quickly the positions started going negative and all my positions were soon liquidated due to margin call.

Lesson Learnt

One important lesson, and a very basic one, that I had learnt from December’s Forex trading. Never over-trade.

Wanting to earn from Forex trading fast enough requires opening of minimally mini-size positions. Being a double-edged sword, price movement can move very fast with or against you. If it goes against you, very soon you will be facing a margin call and lose a huge portion of your account.

Always understand what is the kind of positions that your account size allows you to take. It would be better to earn slower than to over-trade and risk getting margin calls.

What is Next?

I will not be putting more money into the account (until I think I am ready to increase my position size). I will be carrying on with the $1,200 account size, opening nano-size positions to polish up my trading and building up my account size from there.

Portfolio Update (December 2015)

The year 2015 ended when the market closed on December 31. The end of a year marks the start of a new year and in 2016, I had to make some adjustments to my portfolio as the brokerage firm that I was using decided to discontinue its brokerage services in Singapore. A look at how my investment portfolio wrap up in the last month of the year.

2015 just ended marking the start of a new year, 2016. A brand new start for my portfolio as well. My broker, E*TRADE, had just announced the discontinuing of brokerage services in Singapore, leaving me to change my brokerage firm.

E*TRADE discontinuing brokerage service notice | Investor Monkey

After careful considerations and reviewing of available brokerage firms in Singapore, I had decided to move my investments to TD Ameritrade Asia.

The transfer of brokerage firm was quick and simple. Filling up the account transfer form and the transfer of the shares along with the account balances was moved to my new account. The only drawback was that the partial shares had to be liquidated as cash before the transfer. It does not affect me much since I had only just started the DRIP investing and there was not much partial shares.

As part of my investment plans, I will be putting aside approximately $500 a month for purchasing of new shares. For the past six months, I had put aside $3,000 and since the shares are doing a small pullback in price in mid-December, I see a small opportunity to purchase more shares for my portfolio at a small discount. After my ThinkOrSwim account is up and ready, I quickly transferred the $3,000 investment to the account and purchased more shares, on December 22, in the companies I am already invested in. Just in time to purchase the shares for the Christmas rally.

Number of shares and price that I had purchased with the $3,000 investments.

Stock Symbol Shares Price
Home Depot, Inc. HD 4.00 $131.37
Johnson & Johnson JNJ 4.00 $101.71
Automatic Data Processing, Inc. ADP 5.00 $84.76
Clorox Co CLX 4.00 $127.93
PepsiCo, Inc. PEP 5.00 $98.91
Abbott Laboratories ABT 11.00 $44.25

Dividends

Johnson & Johnson (NYSE: JNJ) paid dividends amounting to $3.77, before tax, on December 8.

Home Depot, Inc. (NYSE: HD) paid dividends amounting to $2.37, before tax, on December 17.

Because the dividends are paid to my E*TRADE account, these dividends were kept as account balances and later transferred to my ThinkOrSwim account.

Stock Symbol YTD Dividends
Home Depot, Inc. HD $4.73 0.98%
Johnson & Johnson JNJ $7.52 1.48%
Automatic Data Processing, Inc. ADP $2.94 0.62%
Clorox Co CLX $3.08 0.67%
PepsiCo, Inc. PEP $0.00 0.00%
Abbott Laboratories ABT $2.64 0.53%
Total Dividends $20.91 0.72%

Total year-to-date dividends paid till end-December is $20.91 or 0.72% of my total portfolio size, before I add on more shares to the portfolio.

Stock Holdings

Stock holdings as of December 31, 2015. Cost basis is the total invested amount, including dividends that were reinvested and the commissions and taxes paid. This cost will be used in the percentage calculations for YTD dividends, and profit and loss.

Stock Symbol Shares Cost Basis
Home Depot, Inc. HD 8.00 $1,008.67
Johnson & Johnson JNJ 9.00 $917.68
Automatic Data Processing, Inc. ADP 11.00 $901.98
Clorox Co CLX 8.00 $973.51
PepsiCo, Inc. PEP 10.00 $971.29
Abbott Laboratories ABT 22.00 $983.32
Total Investment Amount $5,756.45

Profit & Loss

My investment portfolio ended positive 2.78%, after including the newly purchased shares. Although the profits does not look great, it did better than the Dow Jones Industrial Average which closed lower at -1.02% for the year.

Stock Symbol Profit/Loss
Home Depot, Inc. HD $59.33 4.89%
Johnson & Johnson JNJ $6.80 0.74%
Automatic Data Processing, Inc. ADP $29.94 3.32%
Clorox Co CLX $41.13 4.22%
PepsiCo, Inc. PEP $27.91 2.87%
Abbott Laboratories ABT $4.70 0.48%
Total Profit/Loss $159.89 2.78%