First Steps to Investing in the Stock Market
Some of the links in this post are from our sponsors. Read our disclosure to see how we make money.
I remember my first exposure to investing in the stock market like it was yesterday. I was ten years old. My grandfather had given me ten 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 – or so I was told.
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 those have been few and far between. 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, not to mention a desire to grow your wealth.
While the potential of loss can cause many to avoid investing in the stock market, it is a necessary part to increasing your net worth. Investing in the stock market really only takes a few simple steps that nearly anyone can follow and 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 no minimum balance requirement, such as through Betterment.
If you’d rather invest in individual stocks, you need to choose an online broker. 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, depends 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 want to start investing in the stock market, there are many places that can help you do just that. 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 they have considerably higher fees and may have higher minimum requirements. The benefits of an online brokerage are lower fees and more control.
This begs the question of which online broker to choose as there are dozens of them. Don’t let that overwhelm you or hold you back from investing in the stock market. If you’re new to investing, 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 best options to consider. Assuming you’re going to invest with little money, here are some of the top ones to consider, along with their minimum balance requirement:
As you can see, there are many available options to invest your money in the stock market. Just pick the one that fits your needs best and start!
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. In simple terms this means you have a long-term view not caring what happens from day to day. That approach tends to do far better than reacting to short-term blips.
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. If this sounds overwhelming to manage, there are options to help.
Automated retirement programs, such as Betterment, manage a portfolio of such index funds at minimal cost and nothing required to start.
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.
Many online brokers have calculators to help you determine the best mix, so make sure to use them. If you choose a robo-advisor like Betterment they do the same and rebalance your portfolio as the year goes on to ensure your portfolio is at your comfort level.
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 that feeling. 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. These are common investing lies that only rob you from growing your wealth.
Time, in terms of growing 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?
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.