Investing in Stocks for the First Time

Investments
By hiveup,

So, you’re finally ready to invest in stocks, or whatever it is that everyone else your age is doing, but aren’t quite sure where to start? We’re here to help you do just that. In this article, we will cover the bases for everything you need prior to investing in your chosen stocks.

 

1. Know yourself
If you are content with lower potential returns and are not the kind of person that bodes well under pressure and risk, perhaps investing in stocks isn’t for you.

To invest in stocks, you are required to be active — investing in stocks take up a lot more time. When investing in a mutual fund, this is an investment in a diversified portfolio of stocks funded by shareholders. Conversely, when investing in only a handful of individual stocks, your investment risk is not as evenly spread. Therefore, each stock will have to be monitored consistently in case any takes a turns for the worse.

Before deciding to invest in stocks, you have to have both the patience and capability of putting yourself and your funds at a greater risk, for a chance at greater returns.

2. Open a CPD account
A Central Depository Securities Account is a means of safeguarding shares that you have purchased on the local stock market. This account is administered by the SGX CDP, an organization that has a positive track record in smoothly operating and settling transactions. Before making your account, you have to consider the type — an individual, joint or corporate account. As most people look to creating an individual account, we will elaborate on this.

In order to make an individual CPD account, here you will require the following:
– 18 years or older
– not be bankrupt
– your identification card
– a copy of either:
a) a bank statement from a MAS licensed bank
b) a CPF statement or
c) a notice of tax assessment.

With all the required documentations, there are three ways for you to open your individual account.

1) You may mail your application and relevant supporting documents through postage.
2) You may apply over the counter at the CDP.
3) You may apply over the counter at an SGX/ST Member broker.

3. Open a trading account
This step is absolutely vital in your pursuit of investing in stocks, as you cannot trade stocks without an account. A trading account, otherwise known as a brokerage account, is one that you have with a brokerage firm, that enables you to buy and sell shares on the local market. There are a plethora of brokerage firms that you can choose from. Before you make your decision, research and compare the various firms — services, research tools and fees, to name a few. Don’t just go for the first one that comes your way, simply for convenience.

Secondly, ensure that your broker is properly licensed. You could check if they are listed by the MAS as a broker. With your money at stake, you might want to ensure that it is in the hands of someone experienced.
To open your account you will require:
– an identification card
– your bank account statements that have been issued within the last three months
– your latest tax statement and
– supporting documents as proof of your mailing address.

4. Choosing your game plan
While investing in stocks may seem as a whole be more suitable for the risk-averse, lower-risk investments do exist. If you are looking for a long-term investment, you might want to consider blue chip stocks — they hold a high dividend yield and are known to be very popular in Singapore, both for the investing virgins and the investing veterans.

As mentioned, investing in just a handful of stocks contains huge risks; albeit it’s potentially high reward due to its limited diversification. If you are looking for a way to lower your risk, diversify your portfolio. This allows your stock holdings to appear balanced and possibly counteract each other in the event that any one of them underperforms.

Lastly, no matter what your investment plan is, you must make sure to get into the habit of keeping yourself and your investments in check — consistently checking the daily financial news and data, not just to prevent your stocks from plummeting, but also to make better investment decisions in the future.

5. Selecting stock
Perhaps the most important step in investing in stocks is the actual selection of them. This selection will either make or break you, do put some proper tender loving care when it comes to making the decision. There are two main means of analysis that you may consider:

a) The Technical Approach
Technical analysis is the study of supply and demand. If you are someone who is intuitive and able to read market signals to predict possible price movements, this approach is for you! An advantage to this approach is time — it can be studied daily, weekly, monthly or even yearly.

Otherwise, you can always hire an expert to do the work for you.

b)The Fundamental Approach
Fundamental analysis is the study of the financial health of a company in order to determine the value of their stock. There are 3 main financial statements that need to be evaluated: a balance sheet, cash flow statement and income statement.

In regards to what stock investment is the best type, any potential investment that has a good mix of quality and value. Quality refers to a healthy cash flow or good earnings growth. While value refers to the current price of the stock, its sales and profits.

6. Relax and invest
Taking that very first step is always scary. Once you’ve decided on your game plan, all you need is the confidence. Don’t be afraid to take that step, leap if you have to, because this is only the beginning of what we hope will be a successful, albeit, not always perfect, investing experience!

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