If you are looking to grow generational wealth, then investing in stocks is definitely something worth considering! Many people believe that you have to be rich or have boatloads of money in order to invest in the stock market, but that’s just a common misconception. You don’t have to be rich to start and all it takes is opening an investment account in order to give you access to one of the biggest money-making vehicles in the history of the world! You just need the right directions How to Invest in Stocks.
We are living in turbulent times in the markets with new record highs being reached almost daily and naturally, people all want a piece of the action. There’s never been a better time to get involved in the stock market and if you are new to the investing world then we’re here to help you get started!
If you have been on the sidelines for too long and have not yet started, we’re going to walk you through the entire process of how to invest in stocks for beginners so that you can start making your money work for you and create wealth over time.
1. First Things First
If you have never invested in stocks before then the entire process can seem a little intimidating, but don’t worry because we are here to help!
You don’t have to be a Harvard-educated finance major to understand the basics, but there are some foundational concepts you’ll need to understand before you can get started.
The first and most important is to decide if investing is right for you or not!
This might sound counterintuitive since you are reading an article on how to invest in stocks but hear me out – there are a number of variables at play that can determine your success as an investor.
Before you consider opening a brokerage account, you should audit your financial situation to see if you are actually in a position to be risking some of your money – you should not be investing money that you cannot afford to lose!
If you are drowning in debt or have not built up a little nest egg of savings, then jumping straight into investing with that money is quite reckless – get your debt situation under control and build up a cash buffer then use any leftover funds for investing.
If you are in a position where you can invest your money without affecting your lifestyle then the next thing to consider is your goals.
2. Determine Your Goals
Investing is a long-term game, not a get-rich-quick scheme so if you are planning on starting, it’s important to determine your goals!
What are you investing in?
Are you investing to build wealth for retirement or to grow some funds for a large purchase in the near future?
How soon will you need the money you plan to invest?
These are all important questions to ask yourself at the start because If you need the money that you are planning to invest within the next 5 years then it’s generally a better idea not to invest it, since there is an inherent risk of losing some of that money in a market downturn.
If you’ve gotten to this point, you should be in a position to invest with money you can afford to lose that you will not require in the next five years. Now it’s time for another important decision!
3. Choose Your Investment Style
Have you ever heard of the phrase “there’s more than one way to skin a cat”?
This saying simply means that there are many ways to achieve a goal (in this case making money and generating long-term wealth) and this couldn’t hold more true than in the world of investing.
There two main camps of investing styles are active versus passive investing.
Which one you will fall into depends on your relationship with risk!
Active investors prefer to be more hands-on in their approach and favor researching individual companies and making self-directed investments based on their own strategies and research. There is a greater risk with this approach and a lot more work involved, but with this comes the potential for life-changing returns. This style of investing is better suited for those with a good relationship with risk.
The passive investing crowd prefers a more hands-off approach and puts their money into an ETF (exchange-traded fund) like the $SPY which is tied to the performance of the S&P 500 index or into a fully automated Robo-advisor account which configures a portfolio based on your own investing profile. As the name suggests, this style is more passive so while you can still get good results from this approach over the long-term, the potential returns are generally lower than what one can expect when investing more actively. This style of investing is generally better suited for those that are more risk-averse.
Both styles of investing hold their own merit so long as the focus remains on long-term growth and not short-term gains. You have to choose which style better suits your own investing profile.
Once you have determined which style of investing best suits you, the next step is to open a brokerage account.
4. What Broker is Best for Me?
There is no one size fits all answer to this question! It all really depends on the individual investor and your goals and objectives!
Competition in the brokerage industry is very tight these days so it’s quite common to see commission-free trading as an industry standard which means that the main competitive differences between the brokers are reputation & credibility, customer service, how intuitive and/or user-friendly the software platforms are. to use and the different account types and account minimums available.
These are all things you should consider when deciding which broker is right for you!
Some well-established brokerage firms you could consider include TD Ameritrade, Interactive Brokers, and E*Trade, while some popular fintech new kids on the block include Robinhood, M1 Finance, and Weibull.
We always recommend you complete your own due diligence and the above-listed brokerages are a good starting point!
When opening a brokerage account, it is extremely important to determine what kind of account you will require.
5. Choose the Right Investment Account for You
The two most common types of brokerage accounts are registered accounts (401k, Roth IRA) and non-registered accounts (cash and margin accounts).
The main differences between registered and non-registered accounts have to do with tax treatments on the realized gains that you make.
Registered accounts tend to have favorable tax treatment (either deferring taxes until a later date or eliminating them entirely), whereas the capital gains realized in non-registered accounts are generally 100% taxable.
When making the decision between which account type is best suited for your objectives, we also recommend speaking with a registered tax professional to ensure you are set up correctly for your unique circumstances!
Once you decide what account(s) work best for you, complete the account opening applications to get the ball rolling. Once the account gets approved, you will have to fund it to get started!
When considering how much capital to fund your investment account with, it should be an amount that you can leave employed in the markets for the next 5 years minimum!
Another thing to consider is that some brokers have minimum funding requirements for new accounts which are usually in the range of $3000 – $5000, however, the tide in the industry is shifting to the point where some brokers no longer have these minimum requirements!
We recommend starting with no more than 10% of your net worth so that you can weather any volatile periods without affecting your lifestyle and remain focused on the long term investing goal.
Once you fund your account, it is important not to put all of your eggs in one basket!
Instead of throwing 100% of your money at a growth stock like Tesla or Apple, you would want to diversify your holdings across different sectors in order to minimize risk and maximize return on investment.
7. What Stocks to Invest In?
The type of stocks that you will invest in depends greatly on the investing style you choose earlier on!
The passive investor prefers to invest in the stock market as a whole instead of individual companies – the go-to option for these investors are Exchange Traded Funds (ETFs) which can be bought on the exchange like stocks but actually consist of a basket of stocks that can be purchased for one price. One of the most popular ETF;s is the $SPY, which is tied to the performance of the S&P 500 index.
The more active investor will instead prefer investing in the shares of individual companies since the aim is to grow the money with a larger return on investment. Growth stocks such as Amazon (AMZN), Apple (AAPL) & Zoom (ZM) are portfolio favorites in 2020.
8. Start Now and Stick to Your Plan
The market operates based on emotion and there will always be ebbs and flows that investors must live within the pursuit of their investing goals.
No matter which path you choose just remember to stay consistent and stick to the plan – consistency is where fortunes are made!
Remember to diversify your investments so that you don’t get spooked and abandon your plan at the first sight of a market dip and your investments should pay-off in the long term.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.