If you ready to start investing in the stock market but don’t know where to start, you’ve come to the right place. When done right, stock investing is one of the best ways to grow long-term wealth. Our guide will help you understand how to start your investing journey into the stock market.
Determine Your Investing Approach
There is more than one way to invest in the stock market and how you buy stocks depends on your investment goals and how much you’d like to get involved in the management of your stock portfolio. The good news is that regardless of how actively involved you want to be in managing your portfolio, you can still become a successful stock market investor. You can choose either one or all of the following approaches to invest in the stock market.
- Individual stocks:If you are ready to invest your time and effort into researching stocks, you can invest in individual stocks. Even if the prices of the shares of certain companies seem pretty high, you can decide to buy a fraction of the shares with modest money.
- Index funds:If you are considering passively managed funds, index funds might be the right option for you. This is an investment that tracks a market index, generally made up of bonds and stocks. Typically, the investment fund invests in all the components included in the index they track. S&P 500 over time has created total returns of about 10 percent annually; this can build considerable wealth over time.
- Robo-advisors: Robo-advisor is also another approach that has gained popularity in recent years. Robo-advisor helps provides financial advice or invests your money on your behalf with minimal human intervention in a way that is appropriate for your risk tolerance, age, and investing goals.
Open an Investment Account
You need a specialized type of investment account known as a brokerage account. These types of accounts are offers by brokerage companies such as Charles Schwab, E*Trade, TD Ameritrade, and many others. It is quite easy to open these accounts, and you can fund them by mailing a check, ETF transfer, or wiring money. It is generally easy to open a brokerage account, but you may have to consider the type of account, compare cost and features before opting for a particular broker.
Choosing Your Stocks
Of course, we can’t discuss everything you should consider when choosing and researching a stock in just a few paragraphs, but here are some of the things you may want to understand before you get started:
- Only invest in companies you understand
- Diversify your stock portfolio
- Avoid investing in high-volatility or penny stocks until you get the hang of it
- Learn the basic concepts and metrics for evaluating stocks.
It is a good idea to learn how to diversify, which means you should invest in a variety of different types of businesses in your portfolio. However, you need to be careful not to diversify too much.
Set Up a Portfolio Review Schedule
Once you’ve started building up your stock portfolio, you may want to create a review schedule to check in on your investments and see if you need to rebalance them. This ensures your portfolio stays balanced with a mix of stocks that are suitable for your financial goals and risk tolerance. Market swings can destabilize your portfolio, so a constant review can help you make incremental trades that can help secure your portfolio. However, you don’t need to check in on your portfolio daily; you can make it a monthly or quarterly schedule.
The Bottom Line
Like all skills that are worthwhile, learning how to invest in the stock market takes time and effort. Fortunately, the payoff can be life-changing. So, you can start with the basics and steadily improve your stock investing skills over time.