You’ve come to the right place if you’re ready to start investing in the stock market but aren’t sure where to begin. It could come as a surprise to hear that a $10,000 investment in the S&P 500 index 50 years ago is now worth nearly $1.2 million. When done correctly, stock investment is one of the most successful ways to create long-term wealth. We’ll show you how to do it. Before you dive in, there’s a lot you should remember. Here’s a step-by-step guide to stock market investing so you can make sure you’re doing it correctly.
WHAT IS YOUR INVESTING APPROACH?
The first thing to think about is how to get started with stock investing. Some investors prefer to purchase individual stocks, while others prefer to be more passive. Individual stocks can be purchased if — and only if — you have the time and desire to study and analyses stocks on a regular basis. If this is the case, we strongly advise you to do so. A wise and patient investor has a good chance of outperforming the market over time. If quarterly earnings results and modest statistical estimates, on the other hand, don’t appeal to you, there’s nothing wrong with taking a more passive approach.
You may invest in index funds, which follow a stock index such as the S&P 500, in addition to purchasing individual stocks. When it comes to actively managed funds or passively managed funds, we prefer the latter (although there are certainly exceptions). Index funds have lower fees and are almost always expected to meet the long-term performance of their underlying indexes. The S&P 500 has delivered total returns of about 10% annualized over time, and such output can create significant wealth over time.
DETERMINE MUCH YOU WILL INVEST IN STOCKS?
Let’s start with the money you shouldn’t put into stocks. At the very least, the stock market is not a good place to put money that you might use in the next five years. Although the stock market would almost certainly grow in the long run, there is just so much volatility in stock prices in the short term — a drop of 20% in a single year is not uncommon. During the COVID-19 pandemic in 2020, the stock market plummeted by more than 40% before rebounding to an all-time peak in a matter of months.
OPEN AN INVESTMENT ACCOUNT
All of the stock buying for beginners’ advice in the world won’t help you if you don’t have a way to buy stocks. To do that, you’ll need a brokerage account, which is a specialized form of account. Companies like TD Ameritrade, E*Trade, Charles Schwab, and others have these accounts. And, in most cases, opening a brokerage account is a simple and painless procedure that takes just a few minutes. You can conveniently finance your brokerage account through an EFT transfer, a check, or a wire transfer.
CHOOSE YOUR STOCKS
It’s a good idea to understand the principle of diversification, which means that your portfolio can include a lot of different types of companies. However, I would advise against over-diversification. Stick to industries you’re familiar with, and if you discover you’re good at (or comfortable with) assessing a specific form of stock, there’s nothing wrong with that industry accounting for a sizable portion of your portfolio.
