What is the United States Stock Market?
Before explaining how to invest in the United States Stock Market, you need to understand its concept well. In essence, a stock market is a place of exchange. Therefore, investors come to him to buy and sell shares of those companies that are listed on the stock market.
Said market is regulated and controlled by a Stock Exchange, which in the case of the United States, is made up of the New York Stock Exchange and the Nasdaq Stock Exchange.
So the total value of the stock market in this country fluctuates daily, depending on the volume of buying and selling of shares.
It is important to note that the New York Stock Exchange (NYSE) is the largest stock market in the world (about its monetary volume).
The objective of the exchange is to execute the purchase and sale order of the shares safely and reliably. In addition, he makes sure to locate other companies that want to participate with their property, as well as citizens who want to invest their money.
How to invest in the US Stock Market
Currently, it is very easy to invest in the United States Stock Market, regardless of nationality you have.
However, you must follow these tips so that this investment is successful and you do not take unnecessary risks. Here are the steps to follow to move in the right direction:
1. Estimate your wealth
A person’s estate is made up of all their possessions, money, and items of value.
Before investing in the United States Stock Market, you need to calculate your assets and determine the amount of money you can invest in them.
You cannot forget that all investments carry risk (and the stock market is no exception). Therefore, it is not advisable to risk more than necessary just to satisfy your investment desires.
In other words, you can’t risk the money or assets you need to survive, as you could be in serious trouble.
Investors generally invest a percentage of their liquid capital or some money they have in cash. In any case, the idea is that you invest some surplus money, or that you can lose (without incurring debt).
2. Develop an investment plan
Developing an investment plan will help you act with intelligence and strategy. In turn, you need to define profitability goals to avoid possible losses.
You must consider numerous factors in said plan, including the possible recessions that the Stock Market could suffer in the event of a crash.
If that happens, you will perceive less liquidity in the long term and your investment in the stock market will no longer be as profitable as it was at the beginning.
Investors who have an investment plan, and return goals, feel more connected to the process, understand the market better, and are prepared to withdraw their profits at the right time.
So your job will not only be to invest money in the stock market, but also to protect your capital at all times.
3. Identify your investment amount
Since 2020 it is possible to invest in the United States Stock Market with very little money. In some cases, you can do it for as little as $1.
However, most platforms that allow you to invest online have a minimum investment amount of $5.
If you are going to make investments online, you will have to have the support of a broker, since you cannot close these types of operations on your own.
One of the most solid and reliable on the market is RobinHood since it allows you to make investments in the US stock market from your smartphone.
Through its app, you can invest from 1 dollar, and the best thing is that it is ideal for most novice investors. (It is very friendly, intuitive, and easy to use).
4. Research each company before investing
This process is known as “due diligence” and consists of reviewing the accounting books of the company, (specifically those of previous years).
It also involves performing fundamental analysis to visualize the historical behavior of its stock prices.
Remember that fundamental analysis determines the intrinsic value of a stock. That is, it determines what it is worth based on certain financial and economic data.
Before buying the shares of a certain company, you should follow these recommendations and review the following financial indicators :
- Read your earnings reports (starting with the annual report). Then you should review the most recent quarterly report.
- Analyze your income statement, balance sheet, and cash flow statement.
Once you are clear about the current financial status of the company, you can decide whether or not it is convenient for you to buy shares.
5. Do a stock search
This process is not simple, much less fast. But a good way to start if you’re a novice investor is to make a list of the companies you usually spend money on.
Do you make recurring purchases at Apple, Nike, or Walmart? Asking yourself this question might clear things up a bit. But the truth is that investments cannot be made blindly, much less with such elementary data.
This means that you will need to spend time reviewing special reports, such as those issued by more experienced investors.
You will also get valuable and up-to-date information on the action pages, and therefore, you cannot ignore them.
On the contrary, you should use that data to calculate the “equity”, or the company’s own resources, so that you know exactly what you are getting into.
Ideal financial characteristics:
These are the ideal financial characteristics that a company should have if you are thinking of buying shares:
- Your earnings must be stable or failing that, they must have a small annual fluctuation.
- Returns to capital must be healthy and consistent.
- Your dividend payments should grow steadily and yearly.
In turn, you need to evaluate certain parameters to define whether it is worth investing in a certain company, such as:
- Big profit margins.
- Five-year return on investment.
- Interest coverage is three times higher.
6. Buy the shares
Investing in the United States Stock Market can bring you great benefits, but first, you must evaluate whether the shares in which you will invest have an attractive price.
A stock is cheap, or at a good price, when it meets the following metrics or conditions:
- Its price/earnings ratio is less than 15x (the market average).
- Your dividends pay more than 3%
- The price/book value ratio is less than 2x.
When you have this information clear and at hand, it will be time to choose a broker or investment fund.
You must ensure that it is registered with the Financial Industry Regulatory Authority and that its track record is easily demonstrable. Specifically, the broker will carry out all investment transactions on your behalf, in exchange for a certain commission.
Today, many brokerage platforms make trading easy and are also reliable.
After opening your account, they will begin to make investments either online or through telephone calls. Of course, you will need to load the funds into your account before placing buy orders and putting your investments in motion.
At this point, before buying individual stocks, the invitation is that you review how index funds work, and in this way, you will not take the risk of choosing individual stocks, but rather invest in sectors, industries, or world economies.
Platforms to start investing online:
The US stock market is one of the largest in the world. For this reason, there are many platforms to invest in online that you should keep in mind.
If you live in Latin America and want to invest in Nasdaq or the NYSE, you should familiarize yourself with eToro, since:
- It is a great social trading platform.
- It offers an excellent service in the investment of cash shares.
- Supports Contracts for Difference (CFD).
At the same time, you need to know other big brokers that operate successfully in the US market. We are talking about:
- Coinbase (Cryptocurrencies)
- The stool.
- Bison Trade.
- Robin Hood.
- Interactive Brokers.
- Fidelity Investments.
- You Invest (JP Morgan).
Importance of training in terms of investment
Some people do not feel prepared to make investments by themselves, due to a lack of knowledge of the market, or because they are beginners in terms of investment.
They feel more comfortable hiring the services of a financial advisor. But you must be clear that they manage their rates and that not everyone can afford them.
Therefore, the most advisable thing is that you train and prepare yourself for the matter on your own. Although you do not need a professional degree in Finance, you do need to know how to buy or sell shares on the stock market.
Likewise, you must understand what a broker is and what role it plays within the stock market.
You can start with the basics, that is, knowing some method to invest money in the stock market through:
The purchase of securities:
They can be shares, or an Exchange Traded Fund (ETF). How do they work? You buy at a certain price, and when the stock rises in value, you sell it.
ETFs allow you to diversify your investment portfolio and combine the shares of several companies. It is made up of various assets that are listed on the stock market, such as futures, bonds, stocks, etc.
In essence, its profitability will be subject to the behavior of the prices of the assets that comprise it.
Dividends are equal to the benefits that a company decides to distribute among its shareholders.
For the latter, they function as a kind of income and can be collected in cash, or through the issuance of new shares.
According to FindCash, they are used by companies to return capital to their shareholders on a regular and consistent basis.
In short, the more prepared you are in terms of investments, the easier it will be for you to manage your money or invest it in stocks.
Invest in the Stock Market strategically
Investing in the United States Stock Market can be very profitable; As long as you do it strategically.
You can buy stocks and take advantage of one of the most significant stock markets on the planet, but you still have to keep in mind that every investment carries risk.
Therefore, you must cultivate your financial intelligence, along with advice from experts in the field so as not to risk more than necessary.