How to Invest in Stocks

How to Invest in Stocks: Your 6-Step Guide for Beginners

With just a few smart choices, you can start making it work for you and before you know it, you will have a well-performing diversified portfolio that you can cash in today or use for your retirement.

how to invest in stocks

It is no secret that a lot of money can be made from the stock market.

In fact, many financial investment plans nowadays are structured around investing of some sort in the stock market.

From bonds to mutual funds, there is a lot of profit that can be gained in these kinds of investments.

It’s basically putting money into the economy so that the economy can generate more money for you.

It’s a win-win for everyone involved.

But you yourself can invest money directly into the stock market and it’s much easier than you think.

Today, we’ll take a look at how you can invest in stocks even if you’re a beginner. Let’s take a look further, shall we?

What Is the Stock Market?

The stock market is a collection of markets and business exchanges where people can buy, sell, and trade stocks or shares of a company.

Depending on the value of the company and of course the demand, prices of stocks can go up and down easily.

Think of it like an auction house where in-demand stocks will see prices go up while those stocks that are not performing will not easily sell and may even lower prices.

If you find the right kind of stock and company, you can easily make tons of profit.

Where Do I Begin?

how to invest in stocks

If you’re like me, you might actually think that it sounds risky and difficult to get into.

In the past, for you to invest, you would need to find a stockbroker and have to deal with him in order to get involved in the stock market.

This can be a tedious process and it also means you are at the mercy of your stockbroker with how he handles your money.

The great thing today is that you can easily put some money in an online stockbroker account and start trading right away.

This way you get to directly decide what stocks to get and when to buy or sell your shares.

It can really be as easy as one-two-three.

In our 6-step guide for beginners, we’ll take a look at how you can maximize investing online and make it work for you.

1. Make a Decision on How You Want to Invest in Stocks

Depending on the kind of person you are, there are two ways to really invest in the stock market that can really work for you. 

If you’re the DIY type and want to take care of your own finances, then you can be a hands-on investor and be the one to choose where you will put your money.

Read on in this guide where we break down how you can be successful in choosing where to invest in.

However, if you are someone that does still want to invest, but is looking for someone to manage it for you, then you can do that too.

What would work best for you is a robo-advisor.

It’s a low-cost investment management service offered by many online brokerage firms.

2. Choose and Create an Investment Account

Once you have made a decision on what kind of investment option you want to choose, then you need to select the kind of investment account that works for your preference.

If you need a little help with your investment choices, then the robo-advisor is advisable, otherwise, you can invest directly.

It’s also interesting to note that both investment options allow you to invest with very little money involved so you can start right away. 

If you are the DIY kind of guy, then probably the quickest and easiest way to invest is in an online brokerage account.

Here you can buy stocks, funds, and a variety of other investments.

When you sign up with an online broker, you can set up an individual retirement account (IRA) or a taxable brokerage account if you already have retirement savings somewhere else.

The more passive option is to invest in a robo-advisor account.

The great thing about robo-advisors is that you still get the benefits of investing in stocks without having to do all the manual labor as it will do most of the work for you.

It provides complete investment management services by asking you what your goals are in investment and then builds a portfolio based on your choices. 

Having the work done for you may sound expensive but the fees are generally a very small fraction of what a real live investment manager would charge.

A robo-advisor can also get an IRA if you so desire. 

3. Stocks vs Stock Mutual Funds – What’s the Difference?

If you are looking to be more hands-on with your investments, then you need to learn the difference between stocks and stock mutual funds as these are the two common investment types.

Don’t worry as it’s really easy to understand.

Stock mutual funds or also known as exchange-traded funds is an investment that allows you to purchase many different stocks under a single transaction.

For example, buying a mutual fund from a Standard and Poor’s 500 fund means that you are buying a small share of stocks from the companies under that index.

You end up owning small pieces of those companies and you can even combine those stocks to build a diversified portfolio.

This allows your investment to be more stable as you are putting your eggs in different baskets. 

Meanwhile, individual stocks are different.

In this case, you are buying stocks and shares of one particular company rather than a set of companies.

It is still possible to diversify your portfolio this way but it will take some significant investments to do so.

The risk is higher because your shares are in an individual company or companies but the reward is also greater if you pull it off. 

Mutual funds are less riskier due to it being a diversified portfolio, and so the likelihood your investments will make money but is unlikely to earn you a huge payout.

how to invest in stocks

4. Set a Budget to How Much You Are Willing to Invest

How much you have to spend really depends on the kind of investment you want to make.

Individual stock prices really depend on how much is the value of each share and can run from a few dollars to a few thousand dollars per share and so you have to think carefully when and where you actually invest in and how much you are willing to shell out.

Mutual funds, however, are different as it is usually a few hundred to a few thousand dollars as funds are often a collection of stocks from different companies.

Most financial advisors though do prefer mutual funds, especially for long-term investments as it has the most stable yields that can run 10, 20, 30 years, or even longer than that.

As a general rule keep stocks a small percentage of your investments with the rest into your mutual funds. 

5. Long-Term Goals Should Be Your Primary Focus

how to invest in stocks

There are many strategies and approaches that can be done in stock market investment.

Many of the successful ones do more than just the basics though and many of them heavily invest in funds for the majority of the portfolio.

Warren Buffet once said that the best investment that any American can make is by putting it in a low-cost S&P 500 index fund and while it will not yield as high as individual stocks, it has the most potential for long-term growth with little risk of the investment tanking. 

6. Make Sure to Manage Your Stock Portfolio Yourself

Stock market investment does not mean you just invest your money than leaving it.

It doesn’t work that way.

You need to regularly check from time to time how your investments are doing and make changes as necessary such as selling stocks or investing in other companies or funds.

While it’s not necessary to check the state of your investments every few minutes like you are day trading but you need to look into them on a regular basis to avoid being caught off guard.

how to invest in stocks

Final Thoughts

We hope you learned a lot in this guide on how to invest in stocks.

This 6-step guide was designed to help newbies that despite how it looks, investing in the stock market is easy and safe for anyone.

With just a few smart choices, you can start making it work for you and before you know it, you will have a well-performing diversified portfolio that you can cash in today or use for your retirement.

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Author: John Benares

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