How to Start Investing in the Stock Market
Are you interested in learning how to invest in the stock market for beginners? If so, you have come to the right place! In this blog post, we will discuss 10 simple steps that will help you get started.
We will also walk you through and guide you on how to open a brokerage account, what types of trades you should research, different account options, and how to create a strong economic future for yourself and your family.
Step 1: Decide What You Want to Accomplish
Step one is deciding what you want to accomplish. What is your end game? Lay out your goals and write them down.
Before you start investing in stocks, you need to decide what you want to achieve.
Are you looking to grow your money over time? Are you looking for a short-term investment that will provide a quick return?
Do you want to save for retirement, buy a house or car, or just play around with market data and try your hand at investing in the market?
Perhaps you just want to invest your money, let it sit there and never look back, until it is time to retire.
Your goals will help determine the type of investments you should make.
Step 2: Understand the Risks Involved
All investments involve some level of risk, and stock investments are no exception.
Step-By-Step Guide on How to Start Investing: 10 Simple Steps to Start Investing in Stocks For Beginners...continued...
Before you invest in stocks, it is important to understand the risks involved and how they could impact your portfolio front to back.
The stock market is risky because stock prices can go up or down, and you could lose money if you invest in a stock that decreases in value.
As the great J.P. Morgan said when asked by a passerby what will happen with the market,
“It will fluctuate.”
However, the stock market also has the potential to offer high returns, which is why many people choose to invest in stocks despite the risks.
How Do You Determine Risk?
As a young person, you can afford to take more risk and you can buy more individual stocks. As you get older, say into your 40s, you will likely want more of your portfolio in more conservative investments.
As you age, your retirement is coming sooner so you likely can’t afford to weather the ups and downs of the stock market.
Year over year, the stock market tends to beat inflation.
Step 3: Open a Brokerage Account
Now that you know what you are doing and have decided on your investment goals, it is time to open a brokerage account! This will allow you to buy and sell stocks and other securities.
There are many different brokerages to choose from, so in your search, be sure to do your research before settling on one.
When you are choosing a brokerage, you should look for one that offers a variety of investment options and has low fees. You should also be sure to read the fine print before opening an account, as some brokerages have hidden fees or require you to maintain a minimum balance.
It is important to consider these factors before opening an account, as they can have a significant impact on your investment returns.
Maybe you are interested in making a trade regularly, maybe you want to invest for retirement, maybe you just want to learn more about the markets, or just play around in the stock market.
Do you want to follow the markets? We can literally do this by following financial news in real time from our phones, but maybe you don't even care about that access to markets and market data and would rather leave the decisions to a professional.
Do you want to study things like a stock's volume, learn about trading, and check the prices of your investments on a regular basis?
Perhaps you enjoy watching financial news, looking at stock market data, and checking out the symbol of your favorite investment.
Do you like checking out the Dow Jones Industrial average? Maybe you don't even know what the Dow Jones is!
Maybe you have never heard of the New York Stock Exchange, NASDAQ Exchange, or Tokyo Stock Exchange. It is OK!
Do you want to follow the stock market yourself and make trades or have an investment professional do the work for you?
Step 4: Choose the Right Stocks for You
Once you have a brokerage account, it is time to start investing in stocks! But which ones should you choose? This search in the stock market can be tricky, especially for beginners.
That's why it is important to do your research and consult with a financial advisor if needed.
An individual stock that is a good choice for one person may not be the best for another, depending on the level of risk they are comfortable with.
Step 5: Create a Budget and Stick to It
Now that you know how much money you want to invest, it is time to create a budget. This will help ensure you don't overspend or take on too much risk.
Go over your budget top to bottom, front to back, and determine what you really can afford.
If you have not created a plan and are not yet prioritizing investing and saving for your future, it is time.
Step 6: Determine Your Portfolio Size
How much money do you want to invest in the stock market? This is another important question that you need to answer before moving forward. You don't want to invest too much or too little, so it is important to find the right balance.
If you don't have any investing experience, you may want to start off small until you are comfortable.
Step 7: Start Investing!
Once you have done all of the above steps, it is finally time to start investing! Be sure to monitor your investments and make adjustments as needed.
Start small as you learn the ropes, then increase as you gain proficiency.
Step 8: Track Your Progress
It is also important to track your progress over time. This will help you see how well your stocks are performing and whether or not you are meeting your investment goals .
Step 9: Re-evaluate Your Strategy
As your stock portfolio grows, you may need to re-evaluate your investment strategy. This will help ensure you are still on track to meet your goals .
Step 10: Consult With a Financial Advisor
Finally, it is always a good idea to consult with a financial advisor. They can help answer any questions you have.
A financial advisor can help you make the most of your stock investments and ensure you are on track to meet your investment goals.
How to Open an Account and Start Investing: A Step-By-Step Guide
For the purposes of explanation, we will use TD Ameritrade to show you how to open an account online.
Let's Get Started
What Type of Account Will You Open?
2. Select an account.
OK...What Are Those Accounts and What Do They Do Anyway?
Not sure which account to choose? Let us help you decide what is best for your needs.
Types of Accounts
An individual brokerage account is best if you want to trade stocks on your own. There are very few penalties for individual brokerage accounts. You can pull money out anytime without penalties You will, however, need to pay tax on any gains.
A joint account is a brokerage account that allows two or more people to trade stocks.
A Traditional IRA is an individual retirement account that offers tax-deferred growth.
With a Traditional IRA, you can make pre-tax contributions. The investments grow tax deferred.
The maximum contribution for 2022 is $6000, or $7000 if you are over 50.
Once you are in a Traditional IRA, you can purchase mutual funds, stocks, bonds, ETFs, CDs, and money market funds.
With a Traditional IRA, the tax benefits are immediate.
A Roth IRA is an individual retirement account that offers tax-free growth. Roth IRAs are funded with after-tax dollars. This means, right now, when you start contributing, your contributions are not tax-deductible. When you start withdrawing the funds, the money is tax free.
You must contribute to the Roth IRA in cash only (no securities or property).
The maximum contribution for 2022 is $6000, or $7000 if you are over 50.
Once you are in a Roth IRA, you can purchase mutual funds, stocks, bonds, ETFs, CDs, and money market funds.
If you think you may be in a higher tax bracket when you retire, a Roth IRA may be best for you.
When you change jobs, you may be eligible to roll your old 401(k) into a Rollover IRA.
So...Still Not Sure Which Account is Best For You?
For the sake of this article, let's pretend we are opening our very first investment account. We will start with the Roth IRA, so we can start saving for retirement with tax-free growth.
So, next select Roth IRA.
You will then need to enter your personal information, including Social Security number or ITN, foreign tax ID, passport or visa number (if you're not a U.S. citizen or permanent resident) employer's name, address, and telephone number.
Moving forward, make sure after you submit this information, it is always current and updated with any changes.
Make a Deposit
Once you have filled out your information and signed the agreements, you can fund your account and get started! Head to "My Account Overview" and then "Deposit."
You have likely already entered your banking information.
If you don't want to think about making deposits, you can set up recurring contributions by choosing how often you want contributions made, whether that is weekly, every other week, monthly, quarterly, annually, every six months, or the last business day of the month.
How Much Should You Contribute?
When you set up your monthly budget, you will choose a comfortable amount after essential monthly expenses and debt repayment.
Soon, you'll be investing and saving for retirement without even thinking about it!
Now, once you deposit funds, they don't get invested unless you tell them where to go.
You may want to buy mutual funds, stocks, or other securities to get started saving for retirement.
You will also have the option to buy Exchange-traded funds (ETFs) which are a basket of securities that track an index, such as the S&P 500.
When you purchase stocks and ETFs, they are held in street name with your brokerage account. This means the stock is registered under your brokerage firm's name for security purposes.
Don't worry, you still own the stock, and the stock pays dividends directly to your account.
You will receive a monthly or quarterly statement from your broker that shows all activity in your account.
Here you can see how you or your investment professional is performing with your trading.
It can be fun to watch the market and stock prices go up and down (if you are going to short stock, but that is a lesson for another time).
If you are happy with the results, then great! If not, maybe it is time to find a new investment professional or review your investment strategy.
Remember, this is YOUR money we are talking about. YOU are in control.
Now that you know the basics of how to get started investing in stocks and other securities, what are you waiting for?