How To Start Investing in Stocks with Little Money
Investing is a way to put money aside when you are busy, and make it work for you, so that you can fully reap the rewards of your future work. Investments are the means to a happier ending. Great investor Warren Buffett defines investing as "the process of spending money now in order to receive more money in the future."
The goal of investing is to put your money to work on one or more types of investment platforms, in the hope of growing your money over time.
All About Investing In Stocks
Investing in stocks is buying a small share of ownership in a public company. Those small stocks are known as company stock, and by investing in them, you expect the company to grow and perform well over time. If the company is performing well, your stock may become more valuable, and other investors may be willing to buy it from you, for more than you paid them. That means that you can make a profit if you decide to sell it.
The best way for a beginner to start investing in the stock market is, by putting money into an online investment account, which can then be used to invest in stocks or stock mutual funds. With multiple brokerage accounts, you can start investing at the price of just one share.
Here are step-by-step guide to investing money in the stock market to help you doing it the right way.
1. Determine your investing approach
The main thing you have to pay attention to is how to start investing in stocks. Some investors prefer to buy individual stocks, while other investors take a less active approach.
Try this. Some of the following statements may describe you best:
- I hate math and don't like doing a lot of "homework".
- I am an analytical woman and enjoy the numbers when doing research.
- I don't have time to learn how to analyze stocks, because I'm a busy professional
- I have a few hours each week to dedicate to the world of stock market investing.
- You love reading about companies where you can invest, but you don't have the desire to delve into anything math-related. The good news is that regardless of which statement you agree with, you are a very good candidate to become a stock market investor.
2. Decide how much money you are going to invest in stocks.
Let's talk about money that you shouldn't invest in stocks. The stock market is not a place for money that you will probably need in the next 5 years or so.
While the stock market will almost certainly go up in the long term, there's too much uncertainty in stock prices in the short term -- in fact, a 20% drop in any given year isn't unusual.
In 2020, during the COVID-19 pandemic, the market plunged over 40%, and rebounded to an all-time high in months.
3. Open Investment Account
All the advice about investing in stocks for beginners doesn't do you much good if you don't have a way to actually buy stocks. In order to do so, you will need a special type of account called a brokerage account.
These accounts are offered by companies like TD Ameritrade, E*Trade, Charles Schwab and many others. Opening a brokerage account is usually a quick and painless process, only taking a few minutes. You can easily fund your brokerage account via EFT transfer, by mailing a check, or by transferring money. Opening a brokerage account is generally easy, but you should consider a few things before choosing a specific broker.
4. Choose your stocks
For those of you looking for some good investment ideas for beginners, here are five good stock pick tips to help you out.
We can't cover everything you should consider when selecting and analyzing stocks with just a few paragraphs, but here are important concepts you should master before you start:
- Invest only in businesses you understand.
- Diversify your portfolio.
- Always avoid penny stocks.
- Don't invest in high volatility stocks until you get used to investing.
- You'll need to learn the basic metrics and concepts to evaluate stocks.
It's a good idea to learn the concept of diversification, which means you should have a variety of companies in your portfolio. I would be wary of diversifying too much. Stick to businesses you understand, and if you find you're good at evaluating certain types of stocks, there's nothing wrong with one industry that makes up a relatively large segment of your portfolio.
Buying flashy high-growth stocks may seem like a great way to build wealth (and they certainly can), but I warn you to hold off on this until you're a little more experienced. It's wiser to "base" your portfolio with a solid and established business.
If you are looking to invest in individual stocks, you should familiarize yourself with some basic ways to evaluate them.
5. Play it safe with Treasury securities
A few small investors begin their investment journey with US Treasury securities, but you can. You never get rich with these securities, but it is a safe place to keep your money—and earn some interest—until you are ready to invest with higher risk/return.
Securities, also known as savings bonds, are easily purchased via the US Treasury bond portal, Treasury Direct. There you can buy fixed-income US government securities with maturities of anywhere from 30 days to thirty years in denominations as low as $100.
Treasury Direct also allows you to purchase Treasury Inflation Protected Securities, or TIPS. It's not just about paying interest, but also making periodic principal adjustments, to account for inflation based on changes in the consumer price index.
And as with mutual funds, you can also arrange to have your Treasury Direct account funded through payroll savings.
Unfortunately, the yield on the treasury has been steadily falling and nearing 0% for a while now, and there's no end in sight to their sluggish performance. This makes the treasury largely a place to keep cash, for safekeeping, rather than a way to grow your money.
You can make money in stocks, but you can also lose it all - there are no guarantees
What kind of growth can you expect from investment? This is the question that most investors want the answer to – and the main reason behind most people's decision to put their money into the stock market.
With savings rates at historically low levels – for example, 1.3% on a typical competitive savings account – the incentive to look elsewhere for decent returns will be strong.
Of course, everyone prefers to make 5% of their money, but only if you take on the level of risk that is right for you.
You Can Decide Which is The Right Investment For You
It doesn't matter if you're buying your first stock, or choosing a stock market mutual fund for the first time, But always try to ask yourself why you want to invest.
Over the years, stocks and bonds have historically outperformed the money in savings accounts.
But that's not a guarantee they'll do it in the future. It's all about your individual circumstances. You may be one of the many people who are discouraged by the rotten rates offered in savings accounts, and are ready to take the plunge in the hunt for bigger profits.
Or you may have devised a well-researched plan to save $1,000 over the next decade, to help pay for your children's tuition fees. In both of these cases, this is a clear green light to go and invest.
No comments:
Post a Comment