It is evident that to invest in stocks is the best way to build future wealth. Moreover, most statistics show that stocks’ prices increase over time, making them an affordable investment for many.
You might be surprised, but can you imagine that if you invested $10,000 in the S&P 500 index in 50 years, it would be nearly $1.2 million today?
There are still a lot of opportunities out there for you to start investing in the stock market, but you will have to learn the right way to do it.
Therefore, if you want to know how to start investing in stocks, you are in the right place. So let’s start our article.
What are the different ways to invest in stock market?
Stocks are different from crypto which you can mine on your android. To make money from stocks, you need to invest in them. If you have money and want to invest it in stocks, you should choose the best way to do this according to your knowledge and time. There are three ways to invest in the stock market:
1- Individual stocks
If you have enough time and passion for searching on Google and websites about each stock and evaluating its stats regularly, you can invest in individual stocks and start building your long-term wealth. This needs a competent and patient investor capable of analyzing the market and determining when to buy, sell or even stop trade and get out of the market. You will have to deal with quarterly earnings reports and make some mathematical calculations before each trade.
2- Index funds
This kind of investment differs from buying individual stocks. In this case, you can choose to invest in index funds. You track a certain stock index till it comes to actively vs. passively managed funds. In general, Index funds have lower costs. They also match the long-term performance of their underlying indexes in most cases which makes them a good opportunity to build a good wealth over time.
Recently, the option of Robo-advisor became very popular among investors. A Robo-advisor is defined as a brokerage that works on your feet. It invests your money in a portfolio of index funds. It takes your total budget, risk management, and investing goals into consideration while trading. A Robo-advisor can also optimize your tax efficiency as well as make some changes automatically.
5 Steps to Invest in Stocks Successfully
Before starting your journey in investing in stock, there are a few steps that you must know. Read them carefully to ensure you’re doing this process the right way:
1- Determine your investing approach
As said before, there are three investing approaches. It would be best to choose which one meets your personality and goals before you start investing in stocks.
Some investors prefer buying individual stocks for investments. Others would prefer a less active approach and go for the index funds option. However, if you trust Robo-advisors, you can leave the entire investment for them to handle. and give you profits.
2- Decide how much you will invest in stocks
Before deciding how much you will invest in stocks, let’s talk about which money you can invest.
To be honest, the whole market goes up and down all the time. So, you can’t invest money you may need within the next five years, at a minimum.
stocks is a profitable, long-term investment. However, it won’t give you any profits in 6 months or even a year. You need at least five years to feel the difference. In fact, a disaster like the COVID-19 pandemic caused a drop of more than 40%; then, the market started to recover gradually. Therefore you should stay away from your emergency funds, tuition payments, vacation funds, etc.
You can only use the money you don’t need within the next five years, and you are okay with losing it.
Now that we have cleared the idea, we can talk about how you want to invest your money, as this can be determined according to certain factors like your age, risk tolerance, and investment objectives.
Age: You may ask yourself what the importance of age is. Your age is an important factor as to when you are young, there is a lot of time for you to make trades and go after the ups and downs. You can win sometimes, and lose than win again other times. However, stocks are less desirable for older adults who are retired and rely on investment income for living.
I want to teach you a simple trick. Subtract your age from 100, and you will get the amount of money you want to invest.
For example, Let’s say you are 30 years old. Then, subtract 30 of 100, you will get 70. In this case, it is a good idea to invest 70% of your money in stocks.
Risk tolerance: People are two kinds. Some of them are risk-takers who like to risk more money hoping they get bigger profits. In this case, you can increase the percentage of your stocks. However, if you don’t like big fluctuations and risks, you can go in the other direction.
3- Open an investment account
The best way to invest in stocks is by opening a brokerage account with a popular broker.
There are a lot of good companies offering brokerage accounts like TD Ameritrade, E*Trade, Charles Schwab, and many others.
It is straightforward and takes only minutes to open a brokerage account. Then you can easily fund it with your visa card, bank transfer, EFT transfer, etc.
Although it is easy to open a brokerage account, you should invest some time in choosing your broker. First, make sure to determine the type of brokerage account.
You have to determine the type of brokerage account. You may want a standard brokerage account, or you may prefer an individual retirement account (IRA).
4- Compare costs and features
Most online stock brokers stopped taking any commissions on funds, so they gained from the trades themselves. However, some offer free tools, educational courses, expectations of popular analyzers, and many other essential features that can help newer investors.
5- Choose a friendly dashboard
You can lose real money if you misuse the broker’s dashboard. For example, adding or forgetting a letter or number can cause a significant loss. Therefore, you should start with a demo.
Choose your stocks
It is time to choose your stock. Of course, we need a lot of guides and researches to talk about all the factors which must be considered to choose a stock; however, I will try to give you some tips:
- Complete all the information on your portfolio.
- Try to do some research about each stock you wanna invest in.
- Avoid high-volatility stocks as a beginner. You can do it later on when. you have more experience in investing.
- Don’t invest in penny stocks.
- Learn the basics for analyzing and evaluating the market.
- Go for diversification when choosing a company. This means don’t invest with a single company, but several ones. Then you can choose the one which offers you the best features to compete with.
6- Continue investing
One day, one of the biggest secrets of investing was revealed by the most successful long-term investor of all time. He said that it is not important to do extraordinary things in order to get extraordinary results.
By applying Warren Buffett’s idea on our topic of how to invest in the stock market and make money, we conclude that it is not necessary to buy a stock and wait for 5-10 years till its price goes to the moon, then you sell it and become rich. But, unfortunately, things are not that easy.
Actually, this may be profitable. But, it is not the best way to do it.
In the stock market, the most profitable way to make money by investing in stocks is to buy good stocks at reasonable prices. Then you buy shares and hold them as long as its business is growing. Then, you can sell it after some time when it produces excellent investment returns or when you need money.
Consecutive Summary to invest in stocks
We all believe that long-term investments are the best way to build wealth: therefore, people struggle to invest in stocks, crypto, Forex, etc.
Investing in stocks can be very dangerous, but these steps can make it easier for you:
1. Determine your investing approach: Choose between Individual stocks, Index funds, or Robo-advisors.
2. Decide how much you will invest in stocks: Only invest money you won’t need in the next five years, and divide your income.
3- Open an investment account: Look for a trusted company to open a brokerage account.
4- Compare costs and features: Make sure to invest your money in the best available company. Compare the costs, commissions and features offered.
5- Choose a friendly dashboard.
6- Continue investing: You don’t have to throw all your money in a certain stock. Make a trade whenever you find a good opportunity.