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It can also feel a bit daunting, perhaps, but it doesn’t have to be. Once you’ve grasped a few basic concepts, and worked out your investment goals and risk tolerance, you can start your investor journey.
What you’ll learn:
Pros and cons of investing in stocks
What exactly is investing? It simply means putting your money into assets with the aim of making it grow. Assets can include stocks, bonds, and property.
There are many investments and products to choose from. You can buy shares or bonds in individual companies. Or you can invest in funds that buy a range of assets on your behalf, Or you can invest in funds that buy a range of assets on your behalf, like an Exchange-Traded Fund (ETF).
Deciding which products are best for you will depend on your circumstances and goals. Stocks can potentially provide higher returns than other investments, such as bonds and cash, but they’re also higher risk.
Some people prefer the ease of investing in funds, which are managed by professionals, so they don't have to research and choose individual stocks. But they can be more expensive than ETFs and stocks.
There are no guarantees when investing, and you may get back less than what you originally invested.
Diversifying your portfolio, which means spreading your investments across a range of asset classes and sectors, can help reduce your risk.
You should also take a long-term view. It typically makes sense to invest for at least 3-5 years, so your money has time to grow and recover from any setbacks.
Buying stocks and shares, also known as equities, means buying a small stake in a company. You can either buy common stock or preferred stocks. Common stocks normally come with voting rights.
Stocks are listed on stock exchanges around the world. The value of your investment will go up and down according to market expectations. These are affected by factors including company performance, market conditions, and the economic and political outlook.
Other factors, such as interest rates, supply and demand, and the wider economic outlook, can also affect the share price. Some of these can’t be predicted, which is why you need to weigh up your risk tolerance before investing.
If the company performs well, and its shares go up in value, you’ll get capital growth, meaning you can sell them for more than you bought them for. The company could also pay dividends, which are a portion of the profits distributed to shareholders. Dividends are a common way for investors to earn income from investing in stocks.
Bear in mind that not all companies pay dividends.
If you decide to invest in individual stocks, there are many ways to assess companies and their current share prices. Here are just a few of them:
Bear in mind that a true assessment would need to compare a share price with similar companies and industries, and the evolution of those metrics over time.
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| Pros | Cons |
|---|---|
Potential for higher returns: Historically outperforms cash and most bonds over the long term. |
Market volatility: Prices fluctuate daily, which can erode value in the short term. |
Accessibility: Many digital brokers allow seamless access and no-minimum investments. |
Fees and trading cost: Platform fees, expense ratios, and bid-ask spreads can diminish gains, especially with frequent trading. |
| Pros |
Potential for higher returns: Historically outperforms cash and most bonds over the long term. |
Potential for higher returns: Historically outperforms cash and most bonds over the long term. |
|---|---|---|
| Cons |
Market volatility: Prices fluctuate daily, which can erode value in the short term. |
Market volatility: Prices fluctuate daily, which can erode value in the short term. |
| Pros |
Accessibility: Many digital brokers allow seamless access and no-minimum investments. |
Accessibility: Many digital brokers allow seamless access and no-minimum investments. |
| Cons |
Fees and trading cost: Platform fees, expense ratios, and bid-ask spreads can diminish gains, especially with frequent trading. |
Fees and trading cost: Platform fees, expense ratios, and bid-ask spreads can diminish gains, especially with frequent trading. |
These terms are often used interchangeably, but there’s a subtle difference. A stock is used to describe ownership certificates of any company, while a share generally refers to an ownership certificate of a particular company.
Your next step is to look at how to start investing. In the UAE, you can open an account with a registered broker who can execute stock trades on your behalf. The broker will take a fee but can also provide you with investment advice, market research reports, and support.
You can also set up an investment account or use an online trading platform to buy shares or funds.
You can place orders specifying the number of shares you want to buy and the price you want to buy them at. Once the transaction is complete, the assets will show in your account.
The minimum amount required to start buying shares varies according to the broker and platform, as do payment options.
Investing in the stock market can yield substantial returns, especially over the long term. But it also carries more risk than other investment options. Stock prices can go up and down, and you might not get what you invested back. So researching different companies and funds before you buy is important.
It can be quite an emotional rollercoaster to watch your shares rise and fall in value. Many people fall prey to the temptation of buying when a stock is rising, and panic selling when its value falls. Remain calm and take a long-term view.
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In the United Arab Emirates, this article is published by HSBC Bank Middle East Limited (“HBME”) - UAE Branch, P.O. Box 66, Dubai, UAE, which is regulated by the Central Bank of the UAE and lead regulated by the Dubai Financial Services Authority. In respect of certain financial services and activities offered by HBME, it is regulated by the Securities and Commodities Authority in the UAE under licence number 602004.
This article is for information purposes only and does not constitute investment advice or a recommendation to purchase any specific investment product. Any views or opinions expressed are subject to change without notice. Before making an investment decision, you should seek advice from your HSBC relationship manager or another professional adviser taking into account your individual financial circumstances and objectives. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article.
