How to become a stock investor

When starting out, a lot of investors build their portfolio from funds rather than shares. It's easier, because the tricky work of picking individual stocks is done by a fund manager, not by you.

But investing in shares can be rewarding, if you feel confident enough to do it. To that end, here’s our helpful guide to how to become a successful stock investor.

How do beginners invest in stocks?

When you come to pick individual shares for the first time, it can seem daunting. But it’s not as difficult as you might think to become a successful stock investor.

As a first step, you’ll need to make sure that you have enough time to research the stocks or sectors you want to invest in. So if you want a quick, hands-off approach to investing, picking shares may not be for you.

But if you’re happy you have the time, your next step is to work out what area you want to invest in. It could be a sector, such as technology, or a region, such as the US. Next, you’ll need to whittle down the number of companies, as there could be hundreds or thousands to choose from.

To help, you can use research tools such as analyst reports, financial data, information on how the stock has performed in the past, and forecasts of the outlook for a company to gather more detail on what you want to invest in.

How do I make money with shares?

When considering how to become a stock investor, keep in mind that there are two ways you can make a return when buying individual shares.

The first is the share rising in value, when the business makes more profits and does well. The second is the company paying out a dividend to shareholders. This happens when a company makes high profits and distributes the excess cash to its owners.

Dividends are variable and you can’t necessarily rely on them (for example, if a company has a low-profit period, it might decide to pay no dividend). But they can be a great way to boost your returns.

Can you lose money investing in stocks?

There is always a risk with investing, and investing in stocks is no different. Picking individual stocks is riskier than picking a fund because funds invest in an array of different companies. So if one company falls in value or even fails, it only represents a small chunk of your total investment.

But if you invest all your money in just one individual stock, which falls in value dramatically, you’ll face a big loss in your portfolio. That’s why an important part of the answer to how to become a successful stock investor is diversification. It’s generally best to pick a range of different individual stocks across different sectors, to spread your risk.

What are the costs of buying shares?

One thing to be aware of when investing in stocks is transaction costs. Usually each time you buy and sell an investment, you’ll incur a small charge for doing so. With AJ Bell that’s £5.00 per online deal, falling to £3.50 per online deal if you made 10 or more share deals in the previous month.

That means, when thinking about how to become a stock investor, it’s important to factor in the charges you’ll pay when trading. It’s also why part of being a successful stock investor is not trading too much, and instead thinking long term when you’re picking shares to invest in.

Key takeaways

•   Investing in individual stocks and shares takes more time than fund investing.
•   Consider dividends, as well as share price growth, as routes to achieving returns.
•   The risk is higher, so make sure you’re diversified – don’t put all your eggs in one basket.
•   Start off small and build up, as you grow your confidence.
•   Be aware of fees – they’ll eat into returns.