Learn how to invest in stock and make more money. Investing in stocks is a smart way to grow your wealth by capitalizing on the success of thriving companies. While it might seem intimidating for newcomers eager to enter the stock market, the good news is that you can start buying stocks within minutes.
So, how can you begin investing in stocks? It’s quite straightforward and offers various approaches. One of the simplest methods is to open an online brokerage account and purchase stocks or stock funds.
If you’re not comfortable doing this on your own, you can enlist the help of a professional to manage your investment portfolio, often for a reasonable fee. Regardless of your choice, you can kickstart your stock market journey online, even if you have limited funds or are not well-versed in investing.
Now, let’s explore the steps to invest in stocks and gain an understanding of how to get started in the stock market.
Investing in Stocks
So, you’re eager to start your journey into stock investing? Here’s a simple four-step checklist to guide you:
Choose How You Want to Invest
In today’s investment landscape, you have several options to match your investing style, knowledge, and the amount of time and effort you’re willing to commit. Your approach to investing can be as hands-on or hands-off as you prefer. Here’s the initial decision you’ll need to make:
- A human professional: This option is perfect if you’d like to spend only a few minutes each year on your investments. It’s also suitable for individuals with limited knowledge of investing.
- A robo-advisor: A robo-advisor is another “set-it-and-forget-it” solution. It employs automated programs to manage your investments, following a decision-making process similar to that of a human advisor but at a significantly lower cost. Setting up an investment plan is quick, and after that, you’ll only need to deposit money, as the robo-advisor handles the rest.
- Self-managed: If you possess greater knowledge about investing or are willing to devote time to making investment decisions, the DIY approach is ideal. If you want to choose your stocks or funds, you’ll need to open a brokerage account.
- Your choice in this step will determine the type of account you open in the next step.
Open an Investment Account
Now, let’s decide on the type of account you want to open. Here are your choices:
If you prefer professional guidance:
- Human financial advisor: A human advisor can assist you in crafting a stock portfolio and guide other financial planning aspects, such as preparing for college expenses.
Typically, they charge either an hourly fee or around 1 per cent of your assets annually, and they may require a substantial minimum investment. The key benefit here is that a skilled human advisor can help you stick to your financial plan. To find the best advisor for your needs, consider these six tips and potential pitfalls.
- Robo-advisor: Robo-advisors can create a stock portfolio tailored to your investment horizon and risk tolerance. They are usually more cost-effective than human advisors, often charging only a quarter of the price or less.
Many robo-advisors also offer planning services to help you maximize your wealth. You can find detailed reviews of major robo-advisors on Bankrate to select one that closely matches your requirements.
If you want to manage your investments independently
- Online broker: Online brokers allow you to purchase stocks and a wide range of other investments, including bonds, exchange-traded funds (ETFs), mutual funds, and options.
The best online brokers often offer commission-free stock trades, along with valuable educational resources and research to enhance your investing knowledge at no extra cost. For beginners, it’s advisable to explore the best brokers designed for newcomers, as listed on Bankrate.
Bankrate also provides comprehensive reviews of major online brokers to assist you in finding a broker that precisely aligns with your specific needs.
If you opt for a robo-advisor or an online brokerage, you can have your account set up in just a few minutes and commence your investment journey.
However, if you choose a human financial advisor, you’ll need to interview potential candidates to determine the one best suited to your requirements and capable of keeping you on track. Bankrate’s free financial advisor matching tool can help you find a financial advisor in your local area.
Decide What to Invest In
The next significant step is determining where you want to put your money. This might feel overwhelming for beginners, but if you’ve chosen to work with a robo-advisor or human advisor, this part becomes much simpler.
Using an Advisor
If you have an advisor – whether human or robot – you won’t need to make these investment decisions yourself. These services handle this for you. For instance, when you sign up with a robo-advisor, you’ll typically answer questions about your risk tolerance and investment timeline.
Then, the robo-advisor designs your portfolio and selects the appropriate funds. Your job is to fund the account, and the robo-advisor takes care of the rest.
Using a Brokerage
If you opt for a brokerage, you’ll have to handpick each investment and make trading decisions. You can choose to invest in individual stocks, stock funds, and a variety of other assets. Top-tier brokers provide free research and a wealth of resources to help beginners learn how to purchase stocks.
If you’re managing your portfolio, you can also decide between active or passive investing. The crucial distinction is how long you intend to hold your investments. Passive investors generally take a long-term approach, while active investors tend to trade more frequently. Research has shown that passive investors often outperform their active counterparts.
Determine How Much to Invest – Then Buy
The key to accumulating wealth is consistently adding money to your investment account and allowing the power of compound growth to do its work. This means you should allocate a portion of your monthly or weekly budget to investing. Fortunately, starting this process is quite straightforward.
How Much Should You Invest?
The amount you invest depends on your financial situation and investment horizon. While you should invest what you can comfortably afford, experts recommend leaving your money invested for at least three years, ideally five or more, to weather any market fluctuations.
If you can’t commit to leaving your investments untouched for at least three years, consider building an emergency fund first. An emergency fund can serve as a financial buffer, preventing you from prematurely cashing out your investments when faced with market volatility.
How Much Do You Need to Start?
Most major online brokerages today either have no minimum account requirement or set extremely low minimums. This means you can begin investing with very little money.
Moreover, many brokers permit you to buy fractional shares of stocks and ETFs. If you can’t afford a full share, you can still purchase a fraction of one, making it possible to start with virtually any amount.
Robo-advisors are similarly accessible. Few have a minimum account requirement, and once you deposit your funds, the robo-advisor handles everything else. You can even set up automatic deposits to your robo-advisor account, making investing a once-a-year consideration (usually at tax time).
After you’ve opened your account and funded it, you can start investing.
Best Stock for Beginning Investors
As a new investor, it’s often a smart choice to start with simplicity and then gradually expand your investment strategies as you gain experience. Fortunately, there’s a fantastic option that allows you to invest in hundreds of the top American companies straightforwardly: the S&P 500 index fund.
This type of fund enables you to own a small portion of some of the world’s best companies at a low cost.
An S&P 500 fund is an excellent choice because it offers diversification, which helps reduce the risk associated with owning individual stocks. It’s a solid pick for investors, whether they are beginners or more advanced, who prefer not to spend too much time analysing investments and would rather focus on other activities.
If you eventually want to move beyond index funds and delve into investing in individual stocks, it can be a good idea to consider “large-cap” stocks.
These are the biggest and most financially stable companies. Look for companies with a strong long-term track record of increasing sales and profits, minimal debt, and reasonable valuations (measured by metrics like the price-earnings ratio or other valuation indicators). This approach ensures you don’t end up purchasing overpriced stocks.
CHECK THESE OUT:
- How to Choose a Financial Advisor
- How to Choose a Financial Advisor
- 12 Important Questions to ask your Financial Advisor
- What is A Financial Plan? – Steps to Creating a Financial Plan
- How to Cut Financial Advisor Expenses
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