How to Make Money by Investing Stocks and Shares, An Introduction In Making You A Good Investor

Investing in stocks and shares - a worldwide phenomenon.

Although this article is focused mainly for the UK, the stock market is a worldwide phenomenon.

Making money with investing in stocks and shares has similar principals all over.

The affects of globalisation have created rules for ease of financial exchange throughout the world.

This communication and terms share commonalities across all nations.

This article, therefore, will ring true for not only the UK but also the world.

I hope sharing these principals will teach you how to make money when investing in stocks and shares effectively.

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Trading in stocks and shares is part of the global economy.
Trading in stocks and shares is part of the global economy.

Investing Stocks and Shares - Not for those with a nervous disposition.

So you’re fed up with near-zero interest rates and tying your cash up for months and months. All right what else can you do? Well there are Premium Bonds, -interest rates equal to just over 2% but at least your money's safe-and always a chance of a big wins.

You might consider shares but how can you make money investing in stocks and shares?  Well, first of all there is a note of warning here.  The stock market is not for widows and orphans or those of a nervous disposition.  Having said that it is a way of earning a decent return in the form of dividends, and the chance of capital appreciation. If you have put aside enough cash for emergencies, and can spare a minimum of £5,000 pounds, then perhaps the market will be the place for you. If it is, then here a few basic rules to go by.

Firstly, try to invest in a sector that you are familiar with, such as insurance if you are in that profession, or supermarket if you are in charge of the family's food shopping, you can tell what company is doing better than another by simple observation.

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Select a stock broker who will treat you fairly.

When first starting it is best to stick to the larger companies (i.e. the top 100 companies) these are usually less volatile than the smaller firms, and their dividends more secure.

Select a stockbroker who will treat you fairly, don't use a broker just because they are 'cheap', remember that a 'cheap' broker will earn their money in other ways, and you will be the loser.

When buying and selling shares, apart from the commissions that have to be paid, there is also stamp duty (1/2% when buying) and the 'spread', this is the difference between the buying and selling price. The price shown in the papers and on teletext is the 'middle-market price'. For e.g. Vodafone shares are shown at £1, the spread would mean that you buy at £1-02p and sell at 98p it is important that you remember this when dealing.

Let us take a typical buying transaction. You ask your broker to purchase 2 thousand shares in Vodafone and are quoted £1-02p, so the cost would be £2,020 plus around £40 fee's and stamp duty-total cost £2,060.

You must pay this amount to your broker within two weeks. He will send you a 'contract note' basically an invoice which details how and when to pay, a few weeks later you will receive your share certificate.

As soon as you have placed your order, you become the owner of the shares, and entitled to all future dividends. Sometimes your contract note will be marked XD-ex-dividend, this means that the latest dividend will be paid to the previous owner- not you. But by the same rule, when you come to sell your shares, and sold XD then you will still receive the current payout.

Now let us suppose that there has been a rally in the company's share price and the price of Vodafone shares has increased to £1-30p and you decide to take a profit, you instruct your broker to sell and he quotes you £1-28p selling. You procured at £1-02p + expenses of £40 = £2,060 and sold at £1-28p less expenses say £40 = £2,520 giving you a capital gain of £460. But sometimes the price can go the other way, so always set yourself a stop-loss, i.e. a price where you feel that the shares are not worth keeping, and it's better to take a small loss rather than a large one.

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Investing In Stocks and Shares Always Has Risk

Investing in stocks and shares always has a level of risk.  Always try to spread your risk, don’t keep all your money in one share or sector. The share prices in the financial pages are grouped into sectors, so you may select which shares in which sector you wish to invest in.

For example:

  • Telecoms----VODAFONE/B.T.
  • Stores-------TESCO/SAINSBURY'S
  • Pharmaceuticals-GLAXO/ASTRAZENICA

and so on.

When picking a share, check the P.E. (PRICE/EARNINGS RATIO) look for a share that is near the average for the sector. Check the YIELD, don't aim too high as this could mean a recent share drop e.g. 15% shown could mean a far lower yield on a former high price.

Dividends are usually (but not always) paid twice a year. These are the interim and final dividends and are made up as 1/3 and 2/3 of the full year yield; the final is usually the larger. Each 1/2 year the company will send you or publish on line a summary of how it is doing, this can make interesting reading and give you some incite into the workings of the company, and it's strategy for it's future development.

Most brokers will offer you the facility of a nominee account. You still buy and sell your shares in the normal way, but they are held in the name of the broker for your benefit. This saves the worry of holding share certificates and having to keep checking the mail due to the unreliability of the postal system for dividend cheques, as all monies are paid into your account with the broker. There is a charge for this service.

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Want to Invest In Stocks and Shares? Want To Share the Joy? Perhaps join a share club?

Finding a broker is relatively simple, check yellow pages and the like for more information. Once contacted the broker will send you a contract and explanatory letter setting out terms and conditions.

I hope that this very general outline may have whetted your appetite for the stock market. Perhaps you feel that laying out a substantial amount of money at this time is not for you, but you would still like to participate, then join a share club, this will give you a deeper incite into the market, meet like-minded people and perhaps make you a few more friends, and all for a few pounds a month.

--Look up PROSHARE on the Internet for a club in your area.

This article has attempted to outline the various options on how to make money whilst investing in stocks and shares.  Remember this is a brief rough guide but it has hoped that you might think more intensely about what direction you wish to go in your venture.  Research is always the key and I hope that the products that I have recommended will take you onto the next stage.  Good luck!

© This work is covered under Creative Commons License

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Comments 15 comments

hubber-2009 profile image

hubber-2009 7 years ago from India

how much loss can we expect..?


shazwellyn profile image

shazwellyn 7 years ago from Great Britain Author

This depends on your portfolio, when you bought and when you intend to sell. The whole idea is that you take control and judge when this is right to you. It is not for those with a nervous disposition, remember. If you can't afford to lose money - don't risk it.

You have to watch the share. Keep a check on their company reports. Know how they operate. You might be a customer of the company - this is great because you can see how good they are at selling their product to you.

This hub is an introduction. Like any business venture.. there is never too much research!

Hope this helps.


hubber-2009 profile image

hubber-2009 7 years ago from India

when the portfolio is dimnishing, is it advisable to book loss?


shazwellyn profile image

shazwellyn 7 years ago from Great Britain Author

You need to pay for specialist expertise.

DISCLAIMER:

The writer takes no responsibility for the actions of readers of this hub. Share prices can go up as well as down and you are not GUARANTEED to make money as a result of reading this article.

The writer is a lay person who has written this on the basis of their own experience. YOU as the reader takes FULL RESPONSIBILITY for any actions that you might take after reading this hub.

YOU ALL HAVE BEEN WARNED!


hubber-2009 profile image

hubber-2009 7 years ago from India

thanks for your warning...


shazwellyn profile image

shazwellyn 6 years ago from Great Britain Author

Well.. I have to cover my backside!


Karina S. profile image

Karina S. 6 years ago from USA

Good hub, very interesting. Thanks


shazwellyn profile image

shazwellyn 6 years ago from Great Britain Author

Actually, now would be the best time to invest in some nice blue chip shares - whilst they are a their lowest. Sit on em and wait. This is just personal opinion x

Thanks for reading Katrina x


DREAM ON profile image

DREAM ON 6 years ago

All tips your tips are helpful.Good luck to all the investors.I don't understand why banks give so little return on your money.When you go to borrow from the same bank they charge 18% or more.It doesn't seem fair.


shazwellyn profile image

shazwellyn 6 years ago from Great Britain Author

Arh.. now that is about profit! They have their shareholders to think about, you know! hehehe


gabby0506 profile image

gabby0506 5 years ago from Bangalore

Excellent hub. It gave me a clear idea about stock market!!


indian stock market tips 5 years ago

This post is really nice and informative. The explanation given is really comprehensive and informative. I am feeling happy to comment on this post. I think this is useful information for users-How does the ordinary investor fit into the equation comprising of global factors coupled with manipulation in the stock markets.

indian stock market tips


shazwellyn profile image

shazwellyn 5 years ago from Great Britain Author

Indian Stock Market Tips. It really is down to individual skills, don't you think?


nifty tips 5 years ago

Not all the time no one can win the match of stock market trade , humans are bounded with emotions and personal affairs that makes them to take wrong decisions at right time even though they are masters of trade. Markets dramatically change they their flow and no one exactly produce or expect 100% from their profits . Choosing the right indicator or analyzing software blended with human aspect gives better results.

regards:

nifty tips


shazwellyn profile image

shazwellyn 5 years ago from Great Britain Author

Thank you Nifty Tips. This is a good point and well worth considering.

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