To Wall Street!
"An investment in knowledge pays the best interest."
- Benjamin Franklin
How to get Started in Stocks
Date Published: Mar 11, 2021
Thinking about investing in stocks and trying your luck in taking on Wall Street?
Investing and trading stocks is a great way to increase your wealth, but getting started can be tricky if it is something you are new to. This is why we are giving you some tips to help get you going in the right direction. Let’s get that bread!
Step 1: Choose a Method & Opening an Account
In order to invest in stocks you need to open an investing account, but first, you need to decide on a method of investing. There are a few different ways to invest in stocks for you to choose from:
Do It Yourself Option
If you want to manage it all yourself from choosing your stocks to selling them, then the Do it Yourself or DIY approach is for you. Make sure you get a brokerage account though and read the rest of this article.
An online brokerage account for DIY will likely offer you the quickest and best money saving path to purchasing stocks, funds and other investments. With a broker, you will be able to open a separate retirement account or an IRA. You can also start a taxable brokerage account if you are already saving up a decent amount of money somewhere else.
The Passive Option
Another method of stock investing is to have someone else manage the process for you, based on your specific goals. If you prefer this method, then you might want to consider the option of securing a robo-advisor, which is a low-cost investment management service. More in depth, a robo-advisor is a digital platform to supply you with an automated, algorithm driven financial planning service that has very little, if not any, human supervision. A robo-advisor will not require you to do any of the work required to choose individual investments, and they provide complete investment management.
Now this route may sound more costly than the DIY method, but the management fees for a robo-advisor are actually a fraction of the cost of what a human investment manager would charge. Robo-advisors typically charge around 0.25% of your account balance.
Step 2: Stocks and Stock Mutual Funds
If you choose to take the wondrous path of DIY, you will have two investment types to choose from when it comes to stock market investing.
- Individual Stocks: If there is a certain company you want to invest in, you will want to put your money towards individual stocks. You can purchase a single share or buy a few shares of stock in a company to get more involved in the stock-trading world. Getting to the point where you have a lush portfolio with many individual stocks is within the realm of possibility, but it takes a serious investment. The amount of money you will need to spend to purchase an individual stock depends on how much the share of a company is. This can range anywhere from a few bucks to a few thousand dollars.
- Stock Mutual Funds or Exchange-Traded Funds: Mutual funds allow you to buy small pieces of several different stocks in just one purchase. Pretty cool huh? They are professionally managed investment vehicles that pool money from investors, such as yourself, and invest into securities such as stock. For example, say you and four friends, the investors, purchase a share of a mutual fund. You will each own a portion of the total portfolio instead of individual securities. This allows you and your friends access to a diverse investment vehicle with just a single purchase. That mutual fund you and your friends invested in, is run by a professional money manager. Mutual funds have great benefits in that they are professionally managed, low-cost, and they invest your money in a variety of companies. This decreases your risk of losing money if one company fails.
However, if your budget is small, but you still want mutual funds an exchange-traded fund or ETF may be the best fit for you. ETF’s are a type of mutual fund that keeps track of an index or portfolio of investment holdings. ETF’s trade like a stock would, meaning you can purchase them for a share price, sometimes for less than $100.
When it comes to stocks versus mutual funds, mutual funds decrease your risk, but rarely rise in dazzling style, where individual stocks have a better chance at rising. The big plus of individual stocks is that the right one can pay off very nicely, but the chances that any individual stock will make your bank account blow through the roof is not good. Most investors, mainly those who are trying to grow their retirement, will note that a portfolio comprised mostly of mutual funds is your best bet.
Step 3: Time to Start Investing
Investing in stocks can be a wild ride filled with complex strategies. However, some of the most successful investors have mainly stuck to the basics. In other words, using funds for the bulk of your portfolio and choosing individual stocks only when you have a good feeling that the company has high potential for long-term growth. In fact, Warren Buffet, one of the world’s most successful investors, said that a low-cost S&P 500 index fund, a mutual fund, is the go-to investment for Americans to make. If you happen to be drawn to individual stocks, learning how to research them is something you should invest time into doing.
Keep in mind that the primary goal of investing is to buy low and sell high. Based on history, you have a better chance of doing this if you put money into a diversified investment, such as a mutual fund. Good luck on your investing endeavors!