Investing in stock involves betting on a company’s growth by buying shares, which increase value alongside a company’s revenue. When your initial investment has grown, you can secure a sale at a higher value than your initial investment, meaning you can 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.
Investing in the Stock Market
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 funds for one share. Alternatively, certain platforms offer paper accounts, which let you simulate your strategies without funds in an account. Below are the five steps involved in stock investing.
Choose a Trading Method
Before you start investing, you need to consider the various methods. Your choice will reflect your approach to investing and how you’d like to choose worthwhile stocks. The first option involves choosing your own stocks and funds. Alternatively, you can have an expert, also known as a Robo-advisor, manage the entire process based on your investment goals. Finally, an option built for beginners involves investing in your employer’s 401(k).
Also, take a look at the best stock newsletters.
Pick an Investing Account
After deciding on a method, you must shop for a suitable investment account. A brokerage account will likely be the right choice if your trading style is hands-on. We recommend opening a Robo-adviser account if you need additional support. Below, we’ll explain what each of these accounts involves.
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 sometimes 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, shopping around is essential. A track record of reliability and strong 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, as you’re new to trading, a platform with access to educational materials will be a good idea. According to Forbes, TD Ameritrade is the best stock broker for beginners.
If you’d instead take a back seat, then a Robo-advisor is your perfect account. 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 investing.
The low cost of a Robo-advisor may sound appealing, but you need to consider carefully choosing a reputable platform. After all, you don’t want to stumble on any hidden costs. Sometimes, you must 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, stock investing isn’t too complicated. Typically, deciding between investing in funds or stocks would be best, so you must understand the key differences.
Individual stocks are designed for investors focusing on a particular company or exploring the landscape by investing in a handful of stocks. You will need to build a diverse portfolio, but it will take time 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 sometimes be worth less than your initial investment. 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 will enable 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 critical benefit of 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, this is the most stable choice. However, you should remember that mutual fund investments won’t increase in value like 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, it would help if you remembered that some years would sit lower than 10% and others higher. The best way to function when trading stocks is to ignore daily and yearly fluctuations and think about decades. It’s easier said than done, but it’s often best not to 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.
Jason Butler is the owner of My Money Chronicles, a website where he discusses personal finance, side hustles, travel, and more. Jason is from Atlanta, Georgia. He graduated from Savannah State University with his BA in Marketing. Jason has been featured in Forbes, Discover, and Investopedia.