I have been investing in the stock market for the past 6 years. Whenever I speak about it with people that have never invested in shares before I always get a very similar response to the topic — “I would like to invest, I just don’t know how. Where do you even start?”. I feel that right now, with everything that is happening in the world, in the middle of a crisis is probably the best time to start investing, especially since it is one of the best times to find good value stocks at decent prices (but more on that later).
Before you start investing there are a few things I usually like to cover with people:
First, let’s think about your income and expenses 💵, this is extremely important, you should be aware of how much money you are bringing in each month and how much money is going out. Investing in shares of companies is risky, and although shares in public markets are usually liquid (meaning you can access that money almost instantly), you should only invest if your income is higher than your expenses. The reason is simple, you want to make sure you have enough money to cover your basic needs like rent, food, transportation, health care, etc. before you start investing.
There are 2 things you can control with your money at all times, one is your variable expenses and the other one is your income. Your variable expenses are all the “wants”. So my suggestion is to make a budget, minimise the unnecessary expenses, and try to earn more.
Once you have figured out your income and expenses, the second thing that you should think about is your savings 💰. This one here is crucial, life is uncertain, and you never know when you will have to cover an emergency. If you research, you will find that many money managers and financial advisers suggest saving at least 6 months of expenses before you start investing. One of the things you learn while investing is that markets fluctuate, the prices go up and down daily, and is important that you have something to cover up unexpected expenses without needing to sell your shares later at an unfavourable price or a loss.
If you created your budget based on the first consideration, you can calculate how much money you will need to save to feel comfortable before starting.
The third point you should think about is a simple one, that is your goals and risk tolerance. Why is this one important? To make sure that you have a clear strategy that you can follow and that you will be happy with the outcome. There is no point of doing something if you feel is not for you.
Here is a quick test you can make to understand your risk tolerance — https://www.calcxml.com/calculators/inv08
Now that we have covered those points we can start talking about getting started. So what happens next?
Well, the first thing you would like to do is to open a brokerage account. One of the greatest things about the times we live in is that there are so many different options and is extremely easy to open an account with a trusted online or mobile broker. Many of them don’t charge any commissions or fees anymore, which is a great way to get started. Here is a short list with links of the ones I think are great to get started with:
- Robinhood — A commission-free online broker with no account minimums. (This is one is currently available only in the US and coming to the UK soon). https://robinhood.com/gb/en/
- Freetrade — Another commission-free and no account minimums mobile broker. They are just getting started and don’t have a vast selection of stocks but is good to get started. https://freetrade.io/
- Trading212 — Similar to the past 2 suggestions. They have been in the market for a bit longer than Freetrade and have a large selection of stocks and ETFs you can purchase. https://www.trading212.com/
- TDAmeritrade — This was my very first online broker, they used to charge a commission fee per trade when I first started but now is commission-free which makes it super attractive for beginner investors. It also has tons of free educational content that you can rely on. https://www.tdameritrade.com/home.page
There are really hundreds of different options out there for you. And the process of opening an account varies from a couple of hours to a couple of days. If you are serious about getting started, don’t hesitate and take action, open your account today!
Now that you have opened your account, take into consideration all the things you have learned so far — your goals, your risk tolerance, your strategy. Fund your account with the amount you feel comfortable with and we are more than ready to get started 🚀
What’s next, is selecting your first investment! Start small, and think about the company you are about to invest in. The journey ahead is a very exciting one and if done properly could be life-changing.
In the next blog post, I will cover the different types of assets you can invest in and how to make a quick analysis of a company so that you can invest with more confidence and reduce the risk you take while maximising your results.
This is my very first blog post, so if you have any recommendation or tips or if you like the post, please feel free to get in touch with me directly — diego@konfidence.app or @diegogueort on Twitter
I am also running an Instagram page where you can find tips on investing and recommendations to complement this blog — IG @konfidence.app
