A beginner’s guide to stock investing

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For people who like beautiful things a little extra money can be very welcome when they want to expand their collection to include a new painting, item of furniture or sculpture.

If you find yourself in the fortunate position of having made a profit by selling on some art that has appreciated in value then you might want a place to put your money that will deliver a good return.

A little knowledge about investing in the stock market should help you to ensure that you have the funds available when you find a special item that you want to acquire.

When most people think about trading in stocks, the image that comes to mind are groups of sweaty men in suits and red braces screaming down phone lines as red and green abbreviations with numbers next to them flash by on electronic notice boards overhead.

The reality of investing in stocks and shares for most people is far less hectic. There are a wide variety of approaches to trading that range from actively managing your stocks day to day, to buying into less risky unit trusts or, if you have more money to invest, having a professional manage your investments on your behalf. Which approach you choose will depend on your attitude to risk and how much time you want to spend researching into your investments.

The most time consuming approach to stock investing is to buy individual stocks yourself. This requires you to undertake a significant amount of research into how each stock that you purchase is likely to perform in the future. There are two basic approaches to analysing stocks. These are known as fundamental analysis and technical analysis.

Fundamental analysis requires you to research into the financial details of the company that you wish to invest in along with any relevant data about the economy that could affect its share price. You can then come to a view about whether or not shares in the company are likely to increase in value. This approach is most useful for people who intend to keep their shares for a reasonable length of time.

Technical analysis involves looking at charts of how the company’s share price has performed in the past and trying to spot patterns in order to predict its future price. This approach is typically used by day traders who seek to profit from the fluctuations in a stock’s price over the course of a single day.

Real world traders will tend to use a mixture of fundamental and technical analysis in order to choose their investments. For many people, the level of research that is required to analyse stocks successfully is not something that they’ll have time to undertake themselves.

Having someone else do the work is therefore an attractive option for many who are new to investing in stocks. The most accessible way of doing this is to buy into unit trusts or OEICs. These are diversified portfolios of stocks that are managed on the behalf of those who buy into them by a team of professional stockbrokers.