First Steps to Investing in the Stock Market
I remember my first exposure to investing in the stock market like it was yesterday. I was only ten years old. My grandfather had given me ten whole shares of AT&T stock. The shares were in physical certificate form and all I knew was that the piece of paper was supposed to be worth money.
Fast forward several decades (too many if you ask me) and my curiosity with investing in the stock market has grown into a passion.
Over those years, I’ve made many mistakes, but thankfully I’ve also enjoyed many victories. You don’t have to be an expert at stock market analysis in order to be successful, but you do have to be willing and ready to take on risk.
While the potential of loss inherent to the stock market can cause many to avoid investing in it, it is a necessary part to growing one’s wealth. That said, investing in the stock market really only takes a few simple steps that nearly anyone can follow in order to have a relative level of success. If being in the stock market is something you want to do but aren’t certain where to start, this post is for you.
Determine How Much You Want to Put in the Stock Market
Unless you come from money, you’ll probably be starting from scratch and that’s ok. Many of us have to start small – myself included. Begin by determining how much you want to invest.
If you’re going the route of investing in mutual funds many will have some initial minimums you need in order to buy in. There are numerous ones available that have initial investments of as low as $250 or none at all, such as through Etrade.
If you’d rather invest in individual stocks, then going through an online broker is going to be your best option. Many of these will also have minimums to get started, though some of them don’t. If you don’t have $1,000 to invest right now, set a goal for yourself to save up the money as you can start investing with $500 or less at a number of online brokers. When you reach your goal, your investment account will mean all the more to you because you had to work harder for it.
Just remember that, if you are contributing to your employer’s 401(k), you are technically already investing in the stock market. An individual portfolio will simply offer you more control than the pre-selected mutual funds of your 401(k) plan. This is, of course, is dependent on the amount of funds you have to invest, but can be a great way to add further diversification and greater growth potential.
For example, you may way to diversify into real estate or guarantee your family’s future financial security with life insurance. For the latter, like any other financial product or service, I’d recommend researching the best companies before purchasing a policy. If tragedy strikes, a term life insurance policy will provide significantly more funds for your family to live off of than a stock portfolio that has been growing for a few years.
Where Will You Invest the Money?
If you’re looking to invest in the stock market, there are many places that can help you get started. You can choose from one of the various online discount brokerages, or you can go more local and find a commissioned broker in your area. The downside to a commissioned broker is that they’re going to have higher fees and may have higher minimum requirements. The benefits of an online brokerage are lower fees and many more investment options.
Simply search for online discount brokerages on Google and you’ll come up with millions of different options to choose from. This can be understandably overwhelming, but take your time to find the one that fits your needs and get started.
I would stress though that if investing in the stock market is new to you then feel free to check out my learn to invest page as I have a selection of different posts I’ve written on how to get started investing. You can also check out my best online brokerages page to find some of the better options to choose from.
What Will Your Portfolio Look Like?
I like the Warren Buffett, approach of investing in what you know.
This may be oversimplifying it, but given his solid wisdom I tend to listen when he talks about investing in stocks. The basic idea is to look around your house and your day to day life to see what products you use on a regular basis. Many of the companies that make those items have been around for decades and are solid companies.
The other idea to follow when it comes to what your portfolio should look like is that you want to invest with the stock market and not against it. You’re liking asking what that means. What this means is that you want to have a long-term view when it comes to investing.
Given that, a great approach to take is to invest with the stock market by investing in solid index funds. Put plainly, an index fund is a basket of stocks that follows a certain index like the Dow Jones or S&P 500. This approach will help you stay with the market as opposed to trying to time the market and end up losing more in the process.
Regardless of which approach you take, you need to determine what level of risk you are most comfortable with. You can invest in individual stocks, some mutual funds, all bonds or a combination of all the above.
When you’re just starting out investing in the stock market, or many times for that matter, a good mix of those various vehicles is probably your best option available. The problem can be knowing how to determine that mix. I use this free calculator as it walks you through a few simple questions and, at the end, provides you with a portfolio allocation that would likely suit you best.
The other thing to consider is that you want to be careful not to have too many brokerage accounts as it can lead to not having a good grasp of everything you’re invested in or the fees you might be paying.
While I do have multiple brokerage accounts at different places, I manage the entire portfolio through Personal Capital which allows you to watch all your investment and banking accounts in one place. This not only provides one location to go to, they also analyze if there are cheaper investment and banking alternatives for you. What I love even more about Personal Capital is that it’s completely free to use and provides a great way to stay on top of all your finances – not just your investments.
Investing in the Stock Market is Vital to Building Wealth
Fear is a common reason given for why people don’t invest in the stock market. I can certainly understand and appreciate that sentiment. Don’t allow that fear or the feeling that you don’t have enough to invest hold you back from investing in the stock market.
Time, in terms of appreciating your assets as well as putting you on an improved path for your financial future is best served by investing your money. If you plan to retire someday, then it’s vital that you begin going down that path sooner rather than later. By having a long term vision of your assets you’ll best set yourself up for overall financial success.
Investing in the stock market can be overwhelming for many. What was your first investing experience?
Additional resource: If you’re looking for somewhere to invest with little money, you can open a Motif Investing account for as little as $250. I personally use Motif as they offer a great way to get started as well as allowing for instant diversification, not to mention promotions when you open a new account with them.