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Investing in the stock market can be both intimidating and foreign, fulfilling and lucrative. Of course, both extremes are part of the experience for beginners, but learning more about the process of investing can ensure you meet your investment goals. Ready to ride the waves of the market? Learn how to start investing in stocks now.
Step 1: Identify your goals.
The first step in investing is to identify your long-term goals and which approach to take. There are limitless choices, and everyone has different goals and risk tolerance.
Here are a few basic questions to guide your plan of action:
- Do I want to invest myself or utilize services offered by licensed professionals?
- Do I invest in stocks for the long-term (years) or do I prefer a shorter-term approach?
- Am I comfortable picking stocks myself (active investing) or does the passive approach suit me better?
- What is my financial situation and how much money should I allocate for investments?
- What are my long-term goals and how will I handle risks associated with investing?
There is no one correct answer to any of those questions. But contemplating your investing style will help you create a plan before moving forward to the next steps.
Historically, the stock market has provided an annualized return of just under 10% per year over the last 100 years. This is generally better than other asset classes like real estate and fixed income.
But the stock market can be volatile and go through periods of negative returns anywhere from short-term pullbacks to long-term bear markets when prices decline significantly.
If you just want to participate but don’t have time or desire to do the work yourself, there are thousands of professional investment companies to create and manage your stock portfolio for a fee. In this case, your next step is to research those companies and find the one that fits your investment style.
Some examples are:
Mutual funds are a professionally-managed investment fund that pools money from many investors to purchase and manage securities (you can start with a small amount).
A registered investment advisor is a firm that provides advice and manages securities (usually for higher net worth clients).
Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little human involvement.
On the other hand, if you want to do stock investing yourself, you need to open a brokerage account.
Step 2: Open your investment account.
To buy and sell stocks, you need to open an investment account with a broker. This is an easy online process, and there are countless reputable brokerage firms you can choose from.
You might also consider digital banks that feature investment accounts. MoneyLion is a digital bank that offers several unique options outside of your typical checking account. You can build your credit with a small loan or take out a cash advance. You can also open an Auto Investing or MoneyLion Crypto account. If you prefer an integrated experience, you might try such an account.
In any case, walk through the following questions to help you narrow your search for the right firm:
- What are the commissions (how much do they charge you for a stock transaction)? Commissions have been declining over the last decade, and several brokerage firms in the United States do not charge commissions.
- What kind of online trading platform is offered? Is it easy and intuitive to place a buy or sell order? Is there a mobile app for trading?
- Does the broker provide research, education, stock news and insights? Are those features free?
- Is charting software available and how user-friendly is it? Is it free?
- Are there charges if you aren’t trading actively?
- Does the platform provide friendly and patient customer service (important for beginners)? Can you talk to someone over the phone?
- What kind of security does the broker use to keep your account safe?
- How long has the service been in business?
- Does it allow retirement accounts and what are the options?
- What is the minimum account size?
- Can you expect user-friendly account management features where you can see your transactions, balances, history and cost?
- Does the firm offer advisory services, and how much is the charge?
Most brokers have answers to these questions right on their websites, but it’s always good to call directly and have a conversation with their representative. Explain your goals and objectives to learn more about the best options for your needs.
It’s common for brokers to offer a simulated account (no real money deposited in your account). It’s worth it to go through the opening process and test-drive services and get comfortable before investing real capital. Simulated trading can also help you practice the process of specifying types of orders, number of shares and other features.
Every professional stock trader has clicked “buy” instead of “sell” or typed 1,000 shares instead of 100 at least once in their lives by accident. So don’t be in a hurry. Make sure the order you are placing is exactly what you want it to do.
Here are some of the types of orders:
Market order is an order to buy or sell a stock immediately. This type of order guarantees that the order will be executed (filled) but does not guarantee the execution price.
Limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
Stop order is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
Day order is an order which will expire at the end of the day (daily trading hours) if not executed.
Good Til’ Canceled order is an order that will remain active until executed or canceled by you.
Here is an example of a typical stock order:
Limit (type of order) Day (duration) order to Buy (action) 100 Shares (number of shares) of MSFT (ticker symbol for Microsoft Corporation) at $210.50 (price).
In plain English, the above order means that you want to buy 100 shares of Microsoft Corporation if it trades at the price of $210.50 today. It will either be filled if MSFT trades below $210.50 or it will expire at the end of the day.
Step 3: Identify your investment strategy.
After determining whether the do-it-yourself or professionally assisted approach is better for you, the next step is to learn some of the most common investment strategies to identify what will work well for your goals and personality.
While there are millions of different stock strategies on Wall Street, the most important issue on the road to successful investing is psychology. You must be honest with yourself and understand your strengths and weaknesses when investing your money. Your stock investing must fit your personality. Trying to blindly replicate what someone else is doing in the stock market rarely works. Instead, learn different techniques and apply the ones that suit you.
For example, investing in ETFs may be a good place to start if you want to adopt a passive approach. An ETF (exchange traded fund) is a basket of stocks that usually tracks a particular index, but trades like a stock. For example, if you would like to be invested in the S&P 500 index, buying SPY (SPDR S&P 500 ETF) will give you a nearly identical return to the index.
There are hundreds of ETFs out there. You can choose which index, sector, industry or region you want to be invested in by selecting an appropriate ETF.
If you prefer researching and picking individual stocks, consider learning the following concepts:
Growth or Value
Growth stocks tend to increase in value rather than provide dividend income.
Value stocks tend to have solid fundamentals, higher dividends and are considered underpriced.
Fundamental or Technical
The fundamental approach is analyzing stocks based on their financial statements and valuations.
The technical approach is analyzing stocks based on chart patterns and sentiment.
It’s always a good idea to be diversified (invest in multiple stocks from different industries and sectors). And try not to forget about volatility. Most investors have a hard time handling big swings in their investments, so try to invest in stocks or ETFs that you are comfortable with.
How Much Do I Need to Start Investing?
While there is no exact formula for how much money is needed to start investing in stocks, treat your account as a serious investment, regardless of whether you start with a few hundred dollars or hundreds of thousands.
Does it Cost Money to Invest in Stocks?
Investors need to be aware of the cost associated with buying and selling securities. Every time you make a transaction, your broker charges you commissions. Over the last several years, however, commissions cost have been trending down.
There are some brokers who don’t charge commissions at all, but investors have to be aware of potential hidden costs when it comes to buying and selling stocks. Unless you are an active trader, the overall commissions cost is minimal.
Best Online Stock Brokers
There are numerous online brokers that can accommodate all your investment and trading needs. Here is a list of some of the most prominent and reputable brokers.
- Best ForMomentum traders
- Best ForTrading Ideas
- Best ForActive and Global Traders
- Best ForActive Traders
- Best ForIntermediate Traders and Investors
Current Stock Movers
There are thousands right now. Benzinga keeps our list up-to-date, so you’re always in-the-know.
Invest in Stocks Today
The stock market is an excellent wealth builder and a never-ending chess match. Learn the basics, read as much as you can, learn the strategies and techniques and avoid being a gambler.
Do your research, run from “hot tips” and know how to handle risk. Learn first, invest later.