Stock Investment 101 (Beginner Friendly)

Started stock investment? Great! Stock investment may sound daunting, but it’s a great way to grow your wealth and diversify your investment portfolio. This article helps beginners kickstart on the basics of stock investment, specifically U.S. stocks.

So, what is Stock Investment?

Stock investment involves buying and holding shares of a company’s stock, with the hope that the value of the stock will increase over time. When you buy a stock, you become a shareholder of the company. You are also entitled to a portion of the company’s profits and assets.

The factors that determine the value of a stock includes the company’s financial performance, market conditions, and investor sentiment. As the company performs well and generates profits, the value of its stock may increase. In this case, shareholders may be able to sell their shares for a profit. On the other hand, if the company performs poorly or faces challenges, the value of its stock may decline, potentially resulting in losses for shareholders.

In comparison to other investment options, such as bond investing or a bank savings account, stock investment has a higher risk level. However, it also has the potential for higher returns over the long term. In reality though, not everyone has extra funds to invest in US stocks, since each share is worth a lot. That is where stock fractionalization comes in.

What about Stock fractionalization?

Stocks are typically bought and sold in round lots, that is 100 shares. However, that usually costs way more than your normal pocket money or savings. Nowadays, investors buy a fraction of a stock which is called stock fractionalization.

Stock fractionalization is the process of dividing a company’s stock into smaller units or “fractions,” which can be bought and sold individually. This allows investors to purchase a portion of a stock, rather than having to buy an entire share.

For example, if a stock is currently trading at $100 per share, an investor who only has $50 to invest may be able to purchase a fraction of a share, rather than having to wait until they have enough money to buy a full share. This can make it easier for investors to get started earlier with stock investing, particularly if they have limited funds available.

Stock fractionalization is often offered through online brokerages or investment apps, which allow investors to purchase fractions of shares using their mobile devices. This can make it more convenient for investors to buy and sell stocks and may also allow them to invest in a wider range of companies. This helps investors diversify into different industries.

Why should you invest into US stocks?

There are several reasons why you might consider investing in U.S. stocks:

• Diversification: By investing in a variety of assets, including U.S. stocks, you can spread out your risk. Potentially you can reduce the impact of market volatility on your portfolio.
• Potential for growth: U.S. stocks have historically provided good returns over the long term. Investing in a diverse range of U.S. stocks may provide the potential for growth and wealth creation over time.
• Liquidity: U.S. stocks are highly liquid, meaning they can be easily bought and sold on financial markets. Making it easier to buy and sell U.S. stocks as needed, depending on your investment goals and risk tolerance.
• Professional management: Many U.S. stocks are managed by professional investors who have extensive knowledge and experience in the markets. This can potentially provide a level of expertise and oversight that may not be available with other types of investments.
• Easy to get started: Traditionally, stocks are bought through a brokerage account via a broker. Nowadays with the advent of FinTech apps like Zorion, investing into US stocks become way easier.

It’s important to note that investing in U.S. stocks, like any investment, carries some level of risk.

Risk, risk, risk.

Being a smart investor also means understanding the risks attached to it. The higher the risk of the investment, the higher the potential loss, the higher the reward! From there, diversify your portfolio in order to potentially reduce risk.

Here are the risks explained:

• Market risk: This refers to market conditions, such as changes in the economy or shifts in investor sentiment.

• Company-specific risk: Risks arises from specific issues within the company, such as poor financial performance or management problems.

• Interest rate risk: When interest rates rise, the value of stocks may decline. Investors may shift their money to higher-yielding investments such as bonds.

• Inflation risk: Economical inflation, which can erode the purchasing power of your money over time.

• Currency risk: If the value of the U.S. dollar declines relative your currency, the value of your investment may also decline.

Investing in stocks carries inherent risks, and there is no guarantee that you will make a profit on your investments. The value of a stock can go up or down, and there is always the possibility of losing money. However, stocks have historically been a good long-term investment, and many people invest in stocks as a way to grow their money over time.

What is my Return On Investment (ROI)?

Now that you are a shareholder of the company you bought stocks from, you may be rewarded dividends! Dividends are payments made by a company to its shareholders, typically in the form of cash or additional shares of stock. Some companies pay dividends on a regular basis, such as quarterly or annually, while others pay dividends only occasionally.

The value of dividends a company pays can vary significantly. Some companies may pay relatively high dividends, while others may pay very low dividends or none at all. Dividend yields, which represent the annual dividend as a percentage of the stock price, can provide an indication of how much income a stock might generate through dividends.

It’s important to note that dividends are not guaranteed, and a company’s ability to pay dividends can be affected by a variety of factors, such as its financial performance and market conditions. Additionally, dividends are not the only way that investors can earn a return on their investments – the value of a stock can also increase over time, which can provide a return through capital appreciation.

What are the types of US stocks?

It’s important to note that different types of stocks may be suitable for different investors depending on their investment goals and risk tolerance. Check out the types of stocks here:

1. Common stock: Common stock is the most common type of stock and represents ownership in a company. As a shareholder, you are entitled to a portion of the company’s profits and assets. You have the right to vote on certain matters at shareholder meetings.
2. Preferred stock: Preferred stock is similar to common stock, but it typically has a higher claim on the company’s assets and earnings. Preferred stockholders may also receive fixed dividends, whereas common stock dividends can vary.
3. Growth stocks: Growth stocks are stocks of companies that are expected to experience above-average growth in the future. These companies may not currently be paying dividends, but they may have the potential for significant capital appreciation. Investors like “MAANG” stocks which stands for Meta, Amazon, Apple, Netflix, and Google.
4. Value stocks: Value stocks are stocks of companies that are trading at a lower price relative to their fundamentals, such as their earnings or assets. These stocks may be undervalued and have the potential for price appreciation over time.
5. Blue-chip stocks: Blue-chip stocks are stocks of well-established, financially stable companies with a long track record of performance. These stocks are considered less risky than some other types of stocks and may provide a steady stream of dividends. A famous example includes S&P 500.

How can I look for Shariah Compliant stocks?

Shariah-compliant stocks are stocks that meet the requirements of Islamic finance. These requirements are based on principles such as the prohibition of investments in certain industries, such as gambling and alcohol. Here are some steps you can take to identify Shariah-compliant stocks:

Look for a Shariah-compliant investment product. Many investment firms offer Shariah-compliant investment products, such as mutual funds or exchange-traded funds, that invest in a diversified portfolio of Shariah-compliant stocks.

Check with a Shariah board or advisory firm such as Shariah Advisory Council of Bank Negara Malaysia (SAC). Many financial institutions have a Shariah board or advisory firm that reviews investments for compliance with Islamic finance principles. As for Zorion, we collaborate with Zoya to highlight Shariah Compliant stocks accurately.

Research on the company’s business activities. If their business activities engage in activities that are prohibited under Shariah principles, then it doesn’t comply with Shariah law. This may include identifying companies that derive a significant portion of their revenue from interest-based financial products. Other examples include companies that are involved in industries such as gambling or alcohol.

By following these steps, you can identify Shariah-compliant stocks and build a portfolio that aligns with your values and principles. It’s important to note, however, that investing in stocks carries risk and that it’s a good idea to do your own research and consult with a financial advisor before making any investment decisions.

Great, how do I get started?

Congratulations on reading thus far! We want to reward you further. Here are some more pro tips for you if you’re new to stock investing:

1. Understand the basics of stock investing.
2. Choose a brokerage or Investment App, like Zorion.
3. Develop a plan: Before you start buying stocks, it’s important to have a plan in place. This should include your investment goals, risk tolerance, and time horizon. It’s also a good idea to diversify your portfolio by investing in a mix of different types of stocks, rather than putting all your money into just one or two companies.
4. Start small: It’s generally a good idea to start small when you’re first getting into stock investing. This will allow you to learn the ropes and gain experience without risking too much of your capital. As you become more comfortable with the process, you can gradually increase your investment.
5. Monitor your investments: It’s important to regularly check on your investments and make sure they are performing as expected. This will allow you to make any necessary adjustments to your portfolio and ensure that you are on track to meet your investment goals.

With a solid plan in place and a bit of patience, you can potentially earn good returns on your investments over time. But really, who has the time to go comb through each stock like a stockbroker? That’s where Zorion comes into the picture.

At Zorion, we help our users identify Shariah Compliant stocks, important stock information, as well as risk ratings at a glance for the busy working class like yourself.

Our full-fledged Zorion Trading app will be released this year! If you are interested to hop on our waitlist, check out our page here!