The beginning of the investment journey

Many of us create flimsy excuses when it comes to investing, some see that it is their right to enjoy the consumption of money in their youth, some are afraid of failure and risk, and others see that saving money dispenses with investment. But in fact, giving up consumption now enables you to consume more in the future as Warren Buffett said in his definition of investment, and that relying on your income from the job is not enough to ensure that you and your family live a decent life, especially with the inflation rates we are witnessing today, and saving reduces the value of money, because today’s Riyal is a higher value than tomorrow's Riyal.

You can start your investment journey by taking the first step now and not wasting your time thinking about it, because the sooner you invest at an early age, the more you will achieve huge returns in the future. Stocks are the best place to start investing, despite the talk of others about them and that they serve as a holocaust for money, but it is the appropriate way for all people to start investing. Investing in stocks does not require huge capital, where you can deduct any amount no matter how small from your income monthly to buy shares and over time you will achieve returns, these returns are either in the form of dividends from the company, meaning that some companies distribute dividends every certain period during the year to one share, for example: Company X distributes quarterly dividends of 3 riyals per share, if you have 100 shares in Company X, then you will receive dividends of 300 riyals every quarter. The other source of returns is capital gain, meaning that you buy the stock today at a certain price and sell it in the future when its price rises, and there are commissions for trading stocks, every time you trade whether you buy or sell the bank will take a commission from you, and these commissions will affect the returns of the portfolio for sure.

It is better to go back and invest your returns if you reap them because in doing so you will accumulate and grow your profits and achieve a huge return in the future.

How do I start investing in stocks?

1. Set your goal, your goal could be to buy a house, or that you are investing for retirement, or just increase the money in your account. Your goals may change over time, but the important thing is to review them every once in a while to focus on achieving them.
2. Determine your risk tolerance, all investments are surrounded by a percentage of risk, but this percentage varies from one investment to another, and in the world of stocks you can manage these risks. risk tolerance means that you may lose money during the period of your investment, it is important to know how much money you are ready to lose if something goes wrong.
3. Try to understand some basic trading terms, in addition to how the market you want to invest in works, such as closing time, the corporate announcements box, what is meant by dividends or shares, and the different orders that can be applied in buying and selling. This may help you read articles or follow analysts interested in monitoring the performance of listed stocks.
4. Choose both the right investment strategy and type of investment for your situation and goals, meaning will you buy shares of companies, enter into ETFs, think about combining them, and do you plan to sell your investments once you make little profits or wait as long-term investments?
5. Open your investment account with the bank, and start building your investment portfolio by filling out purchase orders for the shares you want to invest in.
6. After investing, be sure to monitor your investments and be up to date with the latest news of the global stock markets, as the market often goes through frequent price fluctuations.

Notably, you can now trade virtually, meaning you can trade for a fake amount that is not from your own money, and buy and sell shares virtually for learning. If you still have fears, you can apply the above steps in a virtual portfolio until you reach the degree of experience and then start your real investment.

The process of choosing the right stocks to build a portfolio has always been the biggest question for anyone who wants to invest in stocks, and the most difficult stage to enter this world, which is what we will seek to clarify now.

First, you must learn how to read the company's financial statements, financial ratios, and financial analysis. These will give you a comprehensive perception of the company, and whether investing in it is feasible or a loser. Be careful of taking recommendations, learn how to build your predictions, and analysis by yourself.

The principle of asset diversification, which is an integral part of portfolio management, must be applied, as diversification is concerned with the dissemination of capital in various investment assets such as stocks, bonds, Sukuk, and investment funds, in addition to diversifying investment sectors in these financial instruments. This principle helps greatly to keep the impact of the guesswork away from investment decisions.

A form of diversification is the distribution of investments on certain indices, such as the selection of small classes of stocks or the division of shares based on the total market values, in the form of the selection of each of the large, medium, and small companies.

With the arrival of advanced stages of investment, the investor often has to make decisions on re-balancing and adjusting the distribution of shares in the portfolio, as this is due to the change in the requirements in the form of the investor's advanced age or the change in his financial situation.

When an investor decides that the time is right to re-balance the portfolio, there are several ways to do so and all of them may work. But an investor may prefer one over the other. To re-balance the portfolio, the investor can:

• Selling part of the type of investment asset whose value has risen significantly, and reinvesting its profits in another asset that has not yet risen.

• Change how new investment money added to the portfolio is distributed, by placing them in other types of assets whose prices are still below their fair values, until the investor reaches the distribution that suits them.

• Raise the capital of the investment portfolio, and allocate the increase to invest fully in assets that remain below their fair values.

This is followed by an attempt to track the causes of risk, and price fluctuations are often one of the first risks that all investors may face. Finally, to follow up on the performance of the investment portfolio, in the sense of following up the investment returns for each group of companies belonging to a specific sector and comparing their returns with the returns for the sector index concerned.

All of this may seem complicated for you, especially if you do not have the desire to learn all these things. So there is a simpler way to choose stocks, which is to invest in leadership stocks, which are the most weight in the market or have the most market value which is calculated as follows: the quantity available for trading*market price for the day, the higher market value is the highest weight in the market, and the investment in leadership stocks is a long -term investment, meaning that the real investment fruit or large returns are achieved after a long period.

Sources:

https://cma.org.sa/Awareness/Pages/IFManagement.aspx https://www.investopedia.com/articles/basics/06/invest1000.asp

Tadawul

Prepared by:

Sara Alotaibi