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, 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 $250 like with Motif Investing.
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, though many 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. 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.
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 help 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.
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