Today, I’m here to introduce you to the stock market and how you can make money there.
Chances are, you want to secure your future and make some extra money for yourself, your family, and to fund any dreams you have.
The stock market is a viable way to do this, and you’ve probably asked more than once, How Does the Stock Market Work for Beginners?
This article will inform you of the basic details you need to know before you get started down the exciting and interesting world of stocks.
Bear in mind that stocks change daily and there is no guarantee that you will make money. However, it’s not all bad.
Stay with me as I break it down step by step!
1. Choose Your Style
Women like us have our own style. Some of us love boyfriend jeans and tees, others love a great dress and heels.
Like clothing, you have to choose your own investing style. There isn’t a right or a wrong, just different for each of us.
Which most sounds like you?
A. I want to choose stocks and stock funds on my own
You are a hands-on investor, and we will show you some great brokerages to use online.
B. I want somebody to manage my stocks and the stock-buying process for me.
You will likely enjoy using a robo-advisor, a service that provides low-cost management services for your investments.
A lot of major brokerage firms offer this, and you can invest based on your goals.
Think about which one is best for you, then read on to find out how to handle your business.
2. Get That Account Open
To invest in stocks, you will need an investment account.
For those of you that are hands-on, this means a brokerage account. For those who want a hands-off approach, you should open an account with a robo advisor.
Opening a brokerage account online will be the fastest and cheapest way to buy stocks, funds, and other investments.
If you’re in the US you can open an IRA (individual retirement account) or a taxable brokerage account if your job already has you set up with a retirement savings account. In the UK the best option is a Stocks & Shares ISA which is tax free allowing £20,000 per year to paid into it.
Opening a brokerage account can be process in and of itself, so ask questions, speak with brokers directly, and know what you’re getting into.
Evaluate all costs and selections of investments before you choose.
Some good online brokers are Ally Invest and Fidelity Investments. Both costs under $5 to get started.
We think these are among the best online stock broker for beginners.
You can also open a robo-advisor account. Our top pick for this is Ellevest (which is geared toward women) and there’s no account minimum.
We also liked Wealthfront, although this does require a $500 account minimum.
Robo advisors do everything for you. They will ask you about your own investment goals and then create a portfolio based on those ideas.
The management fees can be daunting but remember it is cheaper than going to a real person to manage your money for you.
A robo advisor prices their services at about .25% to .50% of your assets under their management.
And after you open a robo account, that’s it!
Just watch it and keep track of how your stocks perform.
Those of you going the robo-route are pretty much set (but we encourage you to keep reading in, so you learn more).
And remember, there is nothing wrong with using a stockbroker.
Speaking with a face to face human being may just be the very best choice.
After all, you can speak with somebody directly, and it is their job to field all your questions, concerns and ideas.
They’ve heard from people like you a hundred times over who are looking to get started, so they will be glad to help you out.
After all, a broker speaks and interacts daily with others and has the most up to date investment strategies at his or her disposal.
A stockbroker can also help each and every investor, whether they are new or veterans of the game.
Benefits of a broker
Your broker can provide great financial advice, insight into the market and its nuances, and tell you about advantages and disadvantages as well as risks.
His or her job depends upon you being satisfied with their services; otherwise, you will end up moving your account elsewhere.
The benefits of working with a real broker are many and great.
The broker acts as a middleman between your monies and your investments.
He or she will handle all complicated paperwork and record keeping necessary for legal and tax purposes.
They can also provide you a comprehensive look at the way your portfolio has been performing, discussing with you the losses, profits, gains and such from the past.
The broker will also be sure to stay up to date on the latest regulations and rules that relate to investing.
3. Stocks V. Mutual Funds: Know the Differences
If you’re going the hands-on way, don’t fret. Stock investing does not have to be hard.
For most folks investing in the stock market, you will be choosing among two different types of investments:
- Individual stocks-You can buy a single share or a few shares to get your feet wet when it comes to stock trading. You will want to buy many different shares and diversify your portfolio. This will take time and will be a great investment on your part, so do be patient.
- Stock (equity) mutual funds or ETF (exchange-traded funds) are mutual funds that let you purchase little pieces of a lot of different stocks in one single transaction. Index funds and ETFs are a type of mutual fund that keeps track of an index.
When you invest in one of these funds, you end up owning small pieces of each of those businesses. You can group together many of these funds as a way of building a portfolio.
The pros of stock mutual funds are that they are diversified by nature, so your risk is lower.
However, they are unlikely to increase in serious value like some individual stocks have the potential to do.
A good, lucky pick on some individual stocks can pay off really well, but the chances of this happening are small.
Just diversify-and many investors do-mostly through a portfolio of mutual funds.
4. Make Your Budget
Like you budget for clothing, food, bills and rent/mortgage, you need to budget your investments.
Newcomers to the stock game usually ask two big questions here:
- How much do I need to invest in stocks?
The amount of money that you need to buy an individual stock will vary, as it depends on the price of the shares.
You can buy shares from a few bucks to a few thousand.
If you want mutual funds but have a budget that is small, go for an ETF.
Mutual funds usually have minimums of $1000 and up, but ETFs are traded like a stock and can be bought for as low as $10.
- How much should I invest in stocks?
If you are investing in using funds, you can appropriate a large amount of your portfolio toward stock funds, especially if you’ve got a long-time frame ahead of you.
For example, somebody who is 30 investing for retirement may have 80% of their portfolio in the form of stock funds, whereas the rest might be in the form of bonds.
It is recommended you keep your individual stocks to 10% or less for your portfolio.
5. Fire It Up-Start Investing
Time to turn the key in the ignition and get it going.
Now, this is where it gets fun-stock investing is a lot like a game of strategy and luck.
Investment methods and strategies are intricate and varied.
No two approaches are the same. And some of the most successful investors you will come to learn about haven’t done any complicated tricks-they’ve mostly stuck with the basics.
This means using funds for the meat and potatoes of your portfolio, and even Warren Buffett has stated that a low-cost Standard and Poor’s 500 index fund is the greatest investment that the average American can make.
He also indicated that you should choose individual stocks only if you feel confident in the company’s potential to enjoy long-term growth.
If this approach sounds like something you’d like to pursue, consider learning how to research stocks.
If you prefer to stick mostly with funds, then creating a simple portfolio of broadly-based, low-cost fund options will be a reachable and manageable goal.
You can even review what investors refer to as “lazy portfolios” for some guidance.
These are aimed at folks to want to keep their investments held over a long period of time, and you can simply clone these portfolios in your own 401(k), IRA, or another retirement account.
Some portfolios might use funds that are exclusive to certain investment companies, so if you don’t have access to said funds, simply build the portfolio using like funds from other companies.