How to Invest in Stocks
How to Invest in Stocks
Stocks are one of the best, most reliable forms of long-term investment. And while stock prices rise and fall, for the most part they are crucial to creating a retirement income well into the future. If you had invested $10,000 just over 50 years ago in the S&P 500, your investment would be worth over $1.2 million today. That is how proper wealth-building can occur when you invest in the stock market.
And while investing in stocks is relatively easy in terms of the mechanics, knowing which stocks to choose is somewhat more complicated. What follows is a guideline to help you choose the right way to invest in stocks that fit your needs.
Set Goals when learning How to Invest in Stocks
The first thing you need to do is set the goals that you want to achieve. Knowing what you want to do will dictate the investing strategy that you will take. There is a substantial difference between investing for retirement, creating a college fund for your children, building a monthly income, and more. So, before looking at how to invest in stocks, know what you want before you take the next step.
Understanding how to invest in stocks starts with the understanding that whatever your goals may be, they should be in the long term, such as over several years to at least a decade or more. In other words, making a short-term payment, creating an emergency fund, or putting money aside for next year’s vacation will not work if you are choosing stocks.
Another factor is how old you are in comparison to the type of investing you want to do. For younger people, especially those who have yet to reach the age of 30, then stock investing can be a wise choice for retirement. But if you are 55 or over, then you will need to pursue other methods to save for retirement.
If you are in-between, then you will need to decide how much to invest to get the maximum rewards. You may need the assistance of a financial or stock market expert in this regard.
How much time do you have to devote towards investing in stocks? The answer will dictate in large part your actions when it comes to investing. For those who have plenty of time to invest, this means that you can take more responsibility in terms of researching and making the right choices for stock investments. However, if you only have a little time, then you will need assistance in choosing the right stocks. Either approach will work depending on the time you have to invest.
How Much to Invest in Stocks
You will need to allocate enough money to reap the desired rewards, but not enough to interfere with your daily, weekly, and monthly payments. Set aside what you can comfortably afford and invest it monthly to purchase stocks. You can start with one small stock if you desire and work your way up.
Open Your Account, Learn How to Invest in Stocks & Get Started
There are two basic types of accounts, standard brokerage and IRA. If you are building towards retirement, then an Individual Retirement Account (IRA) is the way to go. However, if you want quicker access to the money invested, such as building up a reliable monthly income based on interest, then you probably want a brokerage account.
There are variations of course that will allow you to tailor in some ways the account that you create. Keep in mind that with the standard brokerage and IRA accounts that you can purchase ETFs, mutual funds, and stocks. The difference is that with a standard brokerage account you can access the money faster and with fewer penalties compared to an IRA. Be sure to evaluate the different types of brokerage and IRA accounts before you choose.
Fees & Features
Although trading commissions have been virtually done away with, brokers will still have fees and features to the accounts they offer which vary in cost. Some brokers will offer plenty of usable materials, so you learn about how stocks work, which stocks make for the best purchase, and even allow access to foreign stock markets. While other brokers keep things lean and cheap in terms of both features and fees.
It will all come down to what you need in terms of buying and selling stocks. If you need more guidance, then you should choose the brokerages that offer the assistance needed. This means paying more fees but making fewer potential mistakes. Keep in mind that even the best advice and guidance may still lead to purchasing stocks that do not live up to their promise.
Selecting Stocks to Purchase
You are all set up, you have the information at hand, now it is time to purchase some stocks. Keep your goals in mind when making purchases, so you can maximize your chances of success. What follows are a few tips that will help guide you in selecting the right stocks.
- Diversify your purchases, do not put all your eggs in one basket
- If you do not understand the business, do not purchase its stocks
- The lower the risk, the lower the return, but that may be a good thing
- Avoid highly volatile stocks, such as penny stocks for example
While everyone has read news stories of people making millions off highly volatile stocks and even penny stocks, the chances that you will benefit are about as likely as winning the lottery. Instead, stick to what you know, look at the history, and then make the best-informed decision you can.
Do not be pressured by the chance to purchase stocks right away if you have not gone over their history. Nor feel compelled to jump on trends that may fade quickly. Instead, start with safer stocks and build up your portfolio. If you feel like taking chances, then only invest with money you feel comfortable tossing into the street.
Understanding how to invest in stocks is relatively simple, but the complications come in choosing the right stocks for your needs. Understand what you want, start with lower risk stocks, and expand your portfolio to protect you from unexpected events. That way, you’ll find success in the long run.
How to Invest in Stocks