Quick Guide to Investing in the Stock Market
Investing in stock involves betting on a company’s growth by buying shares, which increase in value alongside a company’s revenue. When your initial investment has grown, you may be able to secure a sale at a higher value than your initial investment, meaning you can turn a profit over time. If you’re looking for a short return, the stock market isn’t for you because it takes time to see business growth. Often, you will need to grit your teeth and remain investing during low times. Below, we’ll tell you how to get started in the world of stock investment.
How to Get Started
The best way to learn how to trade is by opening an account and making a small investment. Many platforms allow you to open an account with enough available funds for one share. Alternatively, you will find certain platforms offering paper accounts, which let you simulate your strategies without funds in an account. Below are the five steps involved in stocks investing.
Choose a Trading Method
Before your start investing, you need to consider the various methods. The choice you make will reflect your approach to investing and the way you’d like to choose worthwhile stocks. The first option involves choosing your own stocks and funds. Alternatively, you can have an expert manage the entire process based on your investment goals, also known as a Robo-advisor. Finally, an option built for beginners involves investing in your employer’s 401(k).
Pick an Investing Account
After deciding on a method, you have to shop around for a suitable investment account. If your trading style is hands-on, a brokerage account will likely be the right choice. Whereas, if you need additional support, we recommend opening a Robo-adviser account. Below, we’ll explain what each of these accounts involves.
Brokerage Accounts
The fastest route into stock investment is through a brokerage account, which typically costs less. A brokerage account grants you access to a range of other markets, meaning you can expand your profile into forex, materials, and in some cases cryptocurrencies. If you’re already doing well with your 401(k), many providers will grant you access to a taxable brokerage account or you can begin by opening an individual retirement account (IRA).
When searching for the right investment broker, it’s essential to shop around. A track record of reliability and a strong amount of positive customer reviews are always good signs of a viable broker. Further, you need to read the terms and conditions for information on account fees and extra charges. Also, seeing as you’re new to trading, a platform with access to educational materials will be a good idea. According to Forbes, the best stock broker for beginners in 2022 is TD Ameritrade.
Robo-Accounts
If you’d rather take a back seat, then a Robo-advisor is the perfect account for you. These providers will need you to provide details on your trading goals, and then they’ll build up a portfolio to match. You will need to pay for the service, but you’re looking at much less than if you had a human management service. Typically, a Robo-advisor will take around 0.25% of your total account balance, which is nothing in the grand scheme of potential losses in the investing world.
The low cost of a Robo-advisor may sound appealing, but you need to put careful consideration into choosing a reputable platform. After all, you don’t want to stumble on any hidden costs. In some cases, you will need to keep a certain percentage of your account in cash, which holds a low interest and can be painful to watch.
If a Robo account sounds like the best path for you, you’re best off turning away now because the remainder of the article will focus on more hands-on approaches to stock investment.
Stocks Vs. Funds: Know the Difference
If you’re still with us, you should note that stock investing isn’t too complicated. Typically, you need to decide between investing in funds or stocks, which is why you need to understand the key differences.
Individual stocks are designed for investors focusing on a particular company or who wish to explore the landscape by investing in a handful of stocks. You will need to build a diverse portfolio, but it will take time to get there because of the investment amounts and research you’ll need to put in. To help you choose your first investments, you can easily compare stocks by following the link.
Companies go through high and low periods, meaning your stock’s value will fluctuate and may be worth less than your initial investment at times. The key to profiting in the long term is sticking through the tough times and remembering why you initially invested in that particular stock.
Stock mutual funds allow you to invest in small fractions of many company stocks in one transaction. Exchange-traded funds (EFTs) and Index funds allow you to track an index. For example, standard and poor 500 funds will invest in companies within that index. Whenever you make a fund investment, you own a small portion of a company – you can diversify by putting multiple funds together.
The key benefit investing in funds is that there’s less risk involved because your portfolio is relatively diversified out of the gate. If you’re investing for retirement purposes, this is the most stable choice. However, you should keep in mind that mutual fund investments won’t increase in value in the same way individual stocks will.
Think Long Term
On average, stock markets return around 10% annually, making it one of the most stable long-term wealth growth methods. However, you should keep in mind that some years will sit lower than 10% and others higher. The best way to function when trading stocks is to ignore daily and yearly fluctuations and think in terms of decades. It’s easier said than done, but it’s often best to simply not look at your portfolio once you’ve made wise investment choices.
Setting a Budget
One of the most common questions from new stock investors is, “What is the required amount of money needed to get started?”. The answer varies massively depending on the prices of the stocks. However, if you’re investing in EFTs, you can get away with a relatively small budget – often less than $100. For more information on setting a budget for investing, read this article.
Stock investing is a great way to build stable wealth for retirement, given its long-term nature. To get started, you need to understand the different types of accounts and decide whether to invest in funds or individual stocks. There’s no rule for how much to start investing, as long as you can afford to buy at least one share.