Reading Time: 3 minutes Beginner’s Guide to Stock Investing
What does it mean to buy stock in a company? By purchasing a company’s stock, you are sharing in the ownership of a business. You are essentially investing in a company’s long-term success and growth and sharing in its profits.
If the business grows , your shares increase in value, making them worth more. In general investing in the stock market is a long-term endeavor.
Stock Investing is important and easy to start, regardless of your money. With a little knowledge, you can decipher the meaning behind complex stock phrases. The steps to get started are as follows:
Identify your Investment Style
Your stock investing goals and risk tolerance determine the type of stocks you intend to buy and their price. You must consider your financial goals, such as buying a home, earning an income, maximizing capital gains, etc.
Next, you must calculate how much time you have to achieve your goal. Your level of investment risk tolerance is the amount of money you are willing to lose in exchange for the chance of bigger gains.
In general risk tolerance declines as the time horizon of your goal changes.
Decide if you are an Active or passive Investor
In stock investing, an active investor chooses investments on their own or with the assistance of a financial analyst to develop a portfolio.
Passive investors do not pick individual stocks to invest in. Rather, they replicate the performance of particular market indices like the S&P 500 or the American Stock Exchange. Over time, this strategy tends to reduce fluctuation and deliver a more consistent return but offers less room for expansion.
Basically a passive investor is looking to tie the performance of an index. An active investor is looking to beat the performance of an index. Performance in this case is returns and/or risk.
Choose a Suitable Brokerage Account
Investors have various options for opening a brokerage account. You can either do it yourself with an online brokerage account, or you can go through a full service brokerage firm.
We recommend Betterment for taxable accounts and Personal Capital for retirement accounts. Both are investment advisory accounts. That means you answer some questions to determine your risk tolerance and time time horizon. Then you are invested in a portfolio that aligns to your risk and return expectations.
These are considered Robo-Advisors. Traditional Financial Advisors offer Investment Advisory accounts too, you’ll just pay a lot more with them.
Take a Long-Term View of your Finances
You are ultimately in charge of your investments, even if you seek the guidance of a financial adviser. Take your time while making financial decisions and consider how they will integrate into your larger ambitions. Here are some ideas to get you going:
- Plan your budget. Your investing budget should have boundaries and be treated like any other expense.
- If you are not an expert, consult a financial advisor about your intentions. A financial advisor can discuss your best course of action for your circumstances as you consider your investing possibilities.
- Give priority to long-term growth above immediate gains. Transaction costs and capital gains taxes can be reduced by holding an investment for a long time. Plus investing in stocks tends to be a roller coaster. Over time it tends to go up, but there are short term swings.
- Keep your savings and emergency funds separately from your investments. Keep your emergency funds for urgent needs and unforeseen debt.
- Always pay yourself first when investing to significantly boost your investment capital. Invest a portion of your stock’s income before spending on other expenses. This guarantees that you have the money available to cover your expenses.
Conclusion
Beginners may find it a bit challenging to learn stock investing, but all it takes is some research to determine your investing strategy, appropriate account type, and appropriate investment amount.
You must thoroughly conduct your research, develop a core premise, believe in the stock pick you made based on your study, and know when to cut your losses without being emotional.
Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.
Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.
Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.
Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.