Investing 101

## TL;DR

- How much do you want to invest? 
- Which brokerage do you want to open an account with?
- What are you investing in?
- What is your investment style? 

## How do I start?

Now that you’ve decided to start investing, the first thing you need to do is decide how much to invest. If you’re earning a monthly salary, how much do you want to allocate to your investments every month? If your employer offers to match your 401(k), how much will you contribute? Consider your investment horizon and goal, then walk backwards to calculate how much to invest monthly or annually. As a rule of thumb, you should invest at least 10% of your annual income. 

After you’ve allocated your funds, it’s time to open an investment account. There are a lot of different brokerages which you can use but you should consider the best one for your needs. If you’re starting from scratch, Robinhood might be a good place to start because of its easy user interface. If you’re more experienced, then Interactive Brokers might be the correct brokerage for you. It really depends on you. Make sure to research the brokerage’s fee structure. Once you’ve decided your brokerage, set up an account and connect your bank account to the platform. 

Now you have a brokerage account with some money - this is where the fun starts. It’s time to choose what you want to invest in. Based on your risk profile and characteristics, choose investments which you are comfortable and passionate about. Once you know what you want to invest in, you have to think about your investing style. If you’re investing for the long term, then accumulate a good amount of investments. But if you’re investing for a short time, the maximum time you’ll hold an investment may be 1 month. Again, it really depends on you. 

Once you are able to answer all the above questions, you’re ready to dive into the exciting world of investing. 

Now that you’ve decided to start investing, here are a few questions to ask yourself.

Starting to Trade

Trading

Imagine a friend is coming over so you decide to order a large pizza and split it in half. However, another friend crashes the party and now 3 of you are sharing the pizza. Each person still gets pizza except the amount they get per person decreases.

You can think of shares in the same way. A stock dilution occurs when a company issues or creates new shares, causing the original shareholders percentage of ownership in the company to reduce. For any given value of a company, if you add one more share then there’s one more person “eating the pizza”. This negative impact on the value of a slice or share of a company is called dilution. 

The primary reason why a company would choose to dilute its shares would be to raise additional capital. Even though this move affects the current shareholders, it provides the company with the potential for higher profit, growth and eventually increasing the value of its stock. 

Unlike stock splits where the price of the share is adjusted to reflect the same percentage ownership, a stock dilution does affect the percentage of ownership a shareholder has in a company.  

For example: if company LMNO issues 100 shares to 100 shareholders, each shareholder has a 1% claim to the company. However, if LMNO were to issue 100 new shares to 100 different shareholders, this would result in stock dilution, causing each shareholder to only have 0.5% claim to the company. This would also have a negative effect on voting rights since each shareholder now has a smaller claim to the company, its assets and decisions. 

Stock Dilution

Starting to Trade