First Steps to Investing in the Stock Market

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, stocks really are a necessary part of any investment portfolio. Following a few basic steps can help allay the fear of loss and allow you to wisely dip your toes into the pool without feeling like you’re jumping into the deep end.

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 or an index fund 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 $1,000. If you’d rather invest in individual stocks, then going through an online broker  might be your best option. Many of these will also have minimums to get started. If you don’t have $1,000 to invest right now, set a goal for yourself to save up the money. 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 401K, 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 401K plan. After maximizing your annual contributions, you may have other priorities before setting up an individual stock portfolio. 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 generally have higher fees and may have higher minimum requirements. The benefits of an online brokerage are generally lower fees and more options. Simply search for online discount brokerages on Google and you’ll come up with several pages worth of options to choose from. Find which one fits your needs and get started. I would stress though that if investing in the stock market is new to you then certainly find ways to educate yourself as there are numerous free tools available that I’ll be covering in a future post.

What Will Your Portfolio Look Like?

I like the Warren Buffett approach of investing in what you know. That may be oversimplifying it, but he’s a pretty successful, so when he talks about approaches to investing in the stock market, I generally listen. Many of the brands we use trade on the stock exchanges and many of them very profitable companies. Beyond that 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. There are various online tools available which can help you determine what a good portfolio allocation might be and they’ll want to be the first place you go to determine how to allocate your funds.

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?

 

 

Photo courtesy of: Pam Roth

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About the author:

I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. You can connect via Twitter / Facebook.

55 comments on “First Steps to Investing in the Stock Market

  1. I’m a big fan of value investing. Warren Buffett is my financial idol. It’s just very difficult to emulate the way he invests because it’s very difficult to jump in when everyone says get out. And to get out when everyone says to get in.
    Justin@TheFrugalPath recently posted..Twelve Expenses of ChristmasMy Profile

    • When I first started investing I was totally enamored with the idea of technical analysis, and the ability to make buy/sell decisions based on the numbers and charts alone. I quickly learned that this was not as easy as it looks however, and since then have been focused on Value Investing techniques as well. Yes, it can be difficult to get in when everyone else is getting out, but not so much if you know what you’re buying is worth more than you’re paying for it.
      Dustin Small recently posted..How Stock Fundamentals are Derived from Company Financials: Balance SheetMy Profile

    • I can understand that feeling Jordann as I was there once too. Do you have access to a 401k? If so, I would take advantage of any free matching and go from there.

      • We don’t have 401k’s in Canada- I assume they’re similar to out RRSP’s though (registered retirement savings)? I also don’t have any stock involvement, something I plan on educating myself on asap so can participate. We just found out we’re eligible to now contribute to hubby’s pension which is great- 2% salary matched 100% we just need to determine what type of investment plan we want to go with.
        Catherine recently posted..Fun and Frugal Dinner PartiesMy Profile

  2. My first investment was in a company that my mate worked for. He’d been given stock options as part of his employment and told me about them. This piqued my interest so I looked into how to buy shares and promptly bought some myself. I was lucky, they did very well and in the end paid for my wedding :)
    Matt recently posted..More About Money and HappinessMy Profile

  3. I JUST bought individual stocks out of my fidelity account the other day-my balance from my old job had just been hanging out there. I’m REALLY starting to get into it, it’s exciting to check every day and see what is going on. I only invested in brands I use/enjoy, but hopefully I will have the opportunity to branch out soon.
    Lauren @ L Bee and the Money Tree recently posted..Drool-Worthy Gift Guide: Earrings EditionMy Profile

    • That’s awesome! It can be exciting to watch what your stocks are doing, as long as you don’t let the emotion dictate your decisions. Starting out with some brands you know is a great way to start out.

    • That’s a great route to take Kim, especially if you don’t have the time to research. I totally agree, you do need a goal to help you be successful as you get started.

    • Great point Jason! Most plans will generally offer a few solid options and is a great way to get your feet wet. The possible free money isn’t too bad either. :)

  4. I totally agree that stock investing is vital to building wealth. You’re not going to get results investing in CD’s, and a lot Mutual Funds have some crazy fees that really cut into profits.
    Mandy @MoneyMasterMom recently posted..Do you dare to dream?My Profile

  5. Investing in what you know is really important. My first stock was a oil and gas start up. I saw the value considering I work for a major player in the industry. My next purchase was a local brewery that was gaining popularity fast. I made a great profit on both. Don’t get me wrong, I picked some real LOSERS too.
    Derek @ Freeat33 recently posted..Rant; What is your legacy saying about you?My Profile

    • Great for you Grayson! It can be overwhelming in the beginning, but there’s so much free info & education out there that you can really get a good, basic understanding of what to do.

  6. I have read a book on investment provided by a broker company and decided it was too complicated. I like the invest in what you know and have stuck to real estate and index funds for now. I have had a good eye for companies I liked before they were really famous and have seen their stocks really appreciate so maybe on the next call I will invest.
    Pauline recently posted..Can cheap labor make you lazy?My Profile

    • You have to invest in what you know, otherwise you’re opening yourself to much more risk. From what you’ve said in the past I can tell that you have some good diversification working for you.

    • We’re fairly aggressive as well Ornella. I don’t have the time or stomach to day trade, so I leave it to those that do. Having a long term view really is important when it comes to investing.

    • That’s a great point about index funds. What I was referring to with investing in what you know was however about investing in brands you know. It’s a strategy espoused by Buffett and can be a pretty solid one in my opinion. Investing in your company is a whole different can of worms for a different day.

  7. My mom told me to invest early on in my mid-twenties. Initially I ignored and said it was boring and that I didn’t have enough money because I just graduated. Eventually I came to my senses and started to invest in guaranteed investment certificates, which were low risk. Then I moved on to mutual funds in which the minimum contribution was $500.
    MakintheBacon recently posted..Whether You Like It or Not, You’re a Walking BillboardMy Profile

    • Sounds like I’d get a long well with your Mom. She’s totally right because time is a great thing when it comes to investing. Great to hear that you’ve started with some funds.

    • It can be overwhelming Mackenzie, but I would encourage you to not let that hold you back. There’s a lot of free education available to get people started and that education can really breed confidence. Perhaps a post for me to do in the future. ;)

  8. I had held a few index funds but recently sold them to hold the cash in my RRSP. When one is looking to permanently move to another country from Canada it presents a whole host of taxation consequences. So my job right now is to learn the rules so that when the time comes that I know exactly how I need to act with my investments to minimize the amount of taxes I’ll need to pay. Once I transfer my assets to the US I’ll be looking forward to getting back into the stock market!
    K.K. @ Living Debt Free Rocks! recently posted..A Different Kind Of ChristmasMy Profile

    • I would imagine that it presents some unique taxable consequences. Our tax code is messed up enough as it is without throwing another country into the mix as well. :)

    • Thanks for the feedback Joanna, I plan on it! I love investing and the Market so it’ll be a regular feature. That’s a great goal to have, I would be careful though to be cognizant of what they might charge.

    • Thanks Kyle! We just expanded our business this year and need to get a SEP set up. I love that the contribution limits are so much higher, it can provide a nice little tax savings.

    • Great point Joe! I think a lot of people justify keeping cash in a bank account by saying they’re fearful or can’t lose money. However, with rates the way they are they really are losing that purchasing power thanks to inflation.

  9. For me, the biggest challenge to being in the stock market is not paying attention to it every day. When I first started investing, I would check my stocks every hour (with streaming quote services on my desktop). I would get too upset with the ticks down on my stocks and too excited with the ticks up. And when you are emotional, you make REALLY BAD investment decisions. I learned through the years to better manage the emotions and might only check my mutual fund positions about once a month.

    The market is driven up and down each day by fear or greed or other various reasons that we, as small time investors, have no control over. This shouldn’t detract people from getting in it. As other’s have said, it is an incredible way to generate big time wealth.
    Brian Fourman recently posted..5 Personal Finance Items to Evaluate at Least Once a YearMy Profile

    • Great points Brian! I could not agree more in terms of emotions and investing. The key is learning to be able to separate the two so you can make measured and rational decisions. That’s easier said than done though and when the market is 95% fear driven you’ll end up ahead of the game if you can keep a cool head.

  10. Great advice on investing in what you know. It’s the simplest way to invest, and chances are high that you will pick a solid blue chip as a result. People can stop buying ipads at any moment, but they’ll still need the basics like toothpaste, electricity, and gas for their cars. How about some PG, SO, and XOM? You could probably do a lot worse than that.

    My first stock purchase was RIMM back in late 2008. I followed a “tip” from my brother who was working as an engineer on the Storm II product. He thought for sure it was the next big thing that couldn’t fail. It’s fun to laugh about it (why didn’t I at least buy 50% AAPL!), but luckily I was able to break even and not lose any money. After holding for a year, I think I profited enough to buy a cheap steak dinner ;)

    I think that exposure was all I needed to learn that investing in growth stocks was not in the cards for me.
    FI Fighter recently posted..Part 2: The Secret Recipe for Retiring Early (Using the Stock Market)My Profile

    • Great points on buying the staples! Many people don’t realize that but a lot of what you use around the home or in your day to day life are made by numerous major companies that have solid stocks.

  11. First time visiting your blog. Loved this blog post. I totally agree that fear is a common reason given for why people don’t invest in the stock market. Fear also keeps a lot of people from getting out of bad investments. This is one reason why I follow the Buy & Hold approach to investing where I buy low cost, high quality index funds and keep buying them using the dollar-cost-averaging method to even out ups and downs.
    Buy & Hold Blog recently posted..Actively Manged Funds vs. Index FundsMy Profile

    • Thanks! Fear can be a powerful thing, but it should not be anywhere near your investments as it can negatively impact your investments leading you to make unwise decisions. Thanks for stopping by!

  12. Value investing has been my biggest success strategy, especially over the long term. I follow some of the strategy (with some minor deviations) in Joel Greenblatt’s book, “The little book that beats the market”. I also use technical analysis, more to help identify good points to get in or out of a position. I’ve been following that strategy for almost four years now and I’m happy with the result so far.
    Jose recently posted..Estate Planning – It’s Never Too EarlyMy Profile

  13. I welcome the fear and take baby steps with investing. I like the security of ETF’s and mutual funds, but nothing in the investing world is as exciting as striking on an individual stock. I tend to favor brands I use and respect. But I have chased a few high yielding stocks for the fun of it. Thanks fo the post.
    Rich Uncle EL recently posted..Luxury Cars on the CheapMy Profile

    • I do as well. I think the key is to not let that fear hold you back in regards to investing. I like being able to buy a stock/option and getting a hefty return on it, but I think ETFs and Mutual Funds are good for many…especially those that lack time/investing knowledge. Buying the brands you know is a great angle to take…heck Buffett preaches it. Thanks for stopping by!

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