HOW TO INVEST IN STOCKS: A STEP BY STEP GUIDE ON HOW TO GET STARTED
Investing in stocks can be a very important financial decision capable of building wealth for any investor. For long time investors, it can be a great investment strategy even when the stock market is experiencing a downturn effect. Meaning the majority of stocks in the market are on sale.
But when it comes to investing, how do you even know what you’re doing?
Because the fact here is, investing in the stock market can be quite confusing and complicated, especially if you’re completely inexperienced, and that is enough to scare people away from investing.
However, do not fret because this guide will show you the basic step-by-step process of how to get started investing in the stock market.
Are you ready? Let’s get started!
1. Make up your mind on how you want to invest in stocks
a. If you are the DIY type, you might decide to choose to invest in stocks and stock funds and manage your portfolio yourself. Or
b. You could decide to hire someone to manage the entire process for you. If you fall under the second category, it’s best to choose a Robo-advisor, a service that offers low-cost investment management. Alternatively, you can choose to invest with brokerage firms since they give the same service as Robo-advisors, and they make an investment for you based on your specific preference and goals.
Deciding on either two will depend on your preference and your ability to risk assessment, time, fees and investment knowledge.
Once you have decided, it’s time to pick an account.
2. Open an Investing account
Basically, you would require an investment account before you would be able to invest in stocks. If you would like to do it yourself, a brokerage account will be perfect. But for those of you who need some help, it is best to simply open an account through a Robo-advisor. We shall evaluate how to go about them below.
Opening a Brokerage Account
You can open a brokerage account online and use it to buy funds, stocks, and a whole lot of other investment portfolios which is quick and inexpensive. Depending on your status, you can open a brokerage account that is taxable if you’re already saving for your retirement or you can choose to open an IRA.
Opening a Robo-Advisor Account
Choosing a Robo-advisor has several benefits to it. The most important benefit is that you (the owner) do not need to do the legwork required to select individual investments. They offer complete and seamless investment management services to their clients. The companies will ask you to specify your investment goals during the application process. This is so they can build an investment portfolio that is designed specifically to achieve your goals.
Their management fees are generally not as expensive compared with the cost of a human investment manager. This is because most Robo-advisors usually charge 0.25% of your investment balance. Robo-advisors also offer an Individual Retirement Account for their customers.
3. DECIDE TO INVEST IN STOCKS OR STOCK MUTUAL FUNDS
To invest in the stock market, you might choose any of the following investment types or categories:
Individual stock: Going this route means buying a single share or a few separate shares from a single company you particularly admire and believe in. You can also build a diversified portfolio out of many individual shares, but quite risky because you will lose if the company experiences a decrease in its market value.
Stock mutual fund: With mutual funds, however, you can purchase small proportions of several different stocks at a single time. Meaning you own small portions of several companies. You can also build a diversified portfolio by putting several funds together. This lessens your risk because you have an inherently diversified portfolio, especially those investing their retirement savings.
4. SET UP A BUDGET
Obviously, you have to think of how much money you need to start investing in the stock market. This highly depends on how expensive the shares areas the prices of shares can go from a few hundred dollars up to a few thousand dollars. Mutual funds, especially exchange-traded funds (ETFs), can be inexpensive with many of them having a minimum of $1,000 or higher. ETFs, in particular, can be purchased for a small price which usually costs less than a hundred dollars.
5. MANAGE YOUR STOCK PORTFOLIO
Whether you chose to follow the DIY route or have a Robo-advisor do the whole investment work for you, you’ll need to check in on your investment from time to time. This is to ensure that you are still in line with your investment goals.
If you’re investing to achieve your retirement plans, you should consider diversifying your funds or stock investments and moving your stock funds to fixed-income investments.
