When it comes to investing, I find two types of people: those who do it and those who want to but haven’t quite figured it out.
Investing is an age-old wealth-building vehicle that has become more and more accessible to the average person as technology has evolved.
Today, you can open up an app on your phone and have access to owning portions of the tens of thousands of publicly traded companies around the world.
Yet, with its ease of access, many people (perhaps even you) still find the investing world hard to navigate. As a result, they sit on the sidelines and miss out on the opportunity to build substantial wealth for themselves and their families.
The fact of the matter is that if you aren’t investing, you aren’t building wealth.
In this article, I’ll provide a quick and easy guide for you to start investing in the stock market so that you can begin building wealth.
What is Investing?
In simple terms, anything that you can buy at a low cost that will be worth more in the future is an investment. This would mean that, in most cases, a home is an investment, whereas a car is not.
So, when you consider investing in the stock market, you’re simply purchasing a small portion, or share, of a company with the expectation that it will have more value in the future.
Since we can’t predict the future, investing is a bit of a gamble. This is why purchasing stock should only be done after careful research and examination of a company.
Where should you invest?
There is no cookie-cutter investment portfolio that everyone should abide by. Investing should be based on your own individual goals, the time that you have to invest, and how much risk you’re willing to assume.
As a general rule of thumb, the longer the time that you have to invest, the more risks you can absorb since you’ll have more time to recover from any downturns in the markets. In this case, investing in stocks that will outperform inflation is a great place for your money.
You can do this by individually investing in stocks or through mutual funds or exchange traded funds (ETFs).
Funds allow you to buy different stocks from different companies in a single transaction.
Think of them as bundles. You immediately become diversified, while mitigating risks if a single company doesn’t perform well.
They also save you money, as you won’t have to pay fees associated with purchasing a single stock in each company. Instead, there’s one fee for all.
Now, if you’re 5 years away from retirement, safer investments like bonds are more advantageous.
Your tolerance for risk will also dictate where you choose to invest.
If the thought of losing any penny of money scares you, then you’ll need to take a more conservative approach to your portfolio—meaning less stocks. However, if you can withstand a rollercoaster ride, then you may be ok with more growth stocks and stocks in general.
How to Invest in the Stock Market
Here are some simple steps that you can take to begin investing in the stock market. For more guided assistance, sign up for my #BuildYourBank: Intro to Investing course here!
1. Allocate funds for investing
Before you actually purchase your first stock, you need to ensure that you can financially afford to invest. Simply put, make sure all of your responsibilities are taken care of before you put money in the stock market.
Though there is an advantage to getting in the market early, investing should not take precedence over things like covering your household expenses, building an emergency fund, and reducing your debt.
If these things are taken care of and you can comfortably put money aside to invest, go for it!
I recommend getting on a monthly budget and intentionally earmarking funds for investing. You can choose to invest a small portion each month with dollar cash averaging (DCA) investing, or you can save up to buy individual stocks or funds at one time.
To save up, you can leverage a sinking fund just for investing.
2. Determine your strategy
Strategy is the name of the game when it comes to investing. That’s why you need one.
If you’re a newbie to investing, I recommend one underlying strategy that you should build your portfolio upon. That strategy is to buy-and-hold.
Buy-and-hold simply means investing for the long term.
In contrast to this strategy is stock trading—which is essentially trying to time the market to sell stocks at a higher price than what you paid for them. Trading is truly a game of chance and heavy unpredictability.
Determine your Investment Type
Beyond your buy-and-hold strategy, you’ll need to decide if you plan to purchase diverse, individual stocks or leverage mutual funds or ETFs. This will depend on how much money you have to invest and your overall goals.
The price of funds and individual stocks can vary greatly—from less than $100 to thousands.
Remember, you will immediately diversify with funds and save a bit on fees. You can still build a diverse portfolio of individual stocks; however, it will require a bit more research and investment.
3. Open an investment account
To begin investing, you’ll need an investment, or brokerage account. This is a taxable account that you can open with an investment company or brokerage firm.
Although these accounts are typically free to open with no account minimum, the firms will usually collect a fee or commission for placing your investment orders.
You can fund the account by simply linking it to your bank, or sinking fund that you learned about earlier.
There are also apps that you can use to do the same. Robinhood, in particular, is a no-fee investing app that gives you access to ETS, individual stocks, and cryptocurrency.
You can sign up for Robinhood free here.
Robo-advisors are another alternative for investing. Essentially, this service takes your investing goals and creates and manages a portfolio for you that is designed to achieve it.
4. Start investing
Once you’ve put money away, have a strategy, and have opened your account you can start investing.
Get ready for a rush!
Investing isn’t as hard as it may seem. With the right strategy that fits your goals and budget, you can create a portfolio that will begin building your wealth.