How to Invest in the Stock Market: 7 Tips for Beginners
Alright, so you’re just now thinking about investing in the stock market for the first time, and you think to yourself: how in the world do I do this? Don’t worry, there a few practical rules that almost anyone can follow in order to be successful in the stock market over the long term. In this article, we are going to look at how to invest in the stock market with six different tips and tricks that will help to ensure your long-term success.
7 Tips for Beginners for How to Invest in the Stock Market
Tip #1: Start by Choosing a Good Broker
The first thing that you need to do when you are learning how to invest in the stock market is choosing an excellent agent. A “broker” is the platform that allows you to buy and sell stocks. Some of these include Tradeking, Fidelity, Schwab, and others.
What constitutes a good broker? Well, you will want to make sure that they offer low-commission trades since you are just starting out and probably don’t have too many funds to invest with, and you will also want to read reviews to see how good their research platform is.
Tip #2: Buy Index Funds to Get Your Feet Wet
Let’s be frank: it takes quite a while to learn how to invest in the stock market. Anyone can do it, but it takes time to learn to do it well. So, rather than attempting to pick single stocks or mutual funds at the beginning, you should try to buy entire sectors that you think will do well.
You can do this by purchasing index funds which represent an entire sector (i.e. energy, transportation, etc.). While they won’t give you the extreme returns that individual stocks can, “there is safety in numbers” as the adage goes.
Tip #3: Read Great Books by Investment Pros
While you can try to stick it out on your own and learn about the stock market like everyone else, why not seek to avoid some of the pain that comes from dumb mistakes and learn from those who have already made them?
Some of the most successful investors today made horrible investment decisions in the past, and their frank honesty can really help you to maximize your own returns and avoid similar mistakes. I recommend:
- The Intelligent Investor–Benjamin Graham.
- Rich Dad, Poor Dad–Robert Kiyosaki.
- Think and Grow Rich–Napoleon Hill.
Tip #4: If You’re Unsure, Use a Robo-Advisor
While almost everyone I’ve met knows that they need to invest, not everyone feels capable of choosing their own investments. That’s okay too! Know your strengths and avoid your weaknesses, or otherwise turn them into strengths, right?
Thankfully, for those of us who feel unready to learn how to invest in the stock market, there is an option. Sign up for a robo-advisor like Betterment or Acorns, and set your account to receive regular deposits. Robo-advisors will invest the money on your behalf, and you never have to think about it!
Tip #5: Know Your “Time Horizon.”
One of the first rules of investing is that you should be aware of your time horizon. This simply means: “How long until I need my money back?” Over periods greater than ten years, the stock market almost always wins.
However, what if you need your money back in two years? If so, the stock market may not be a great tool for you. After all, the value of the market could plummet during that time, and then you would have to withdraw your money when you needed it…that would be bad.
Tip #6: Know Your Risk Tolerance
Along with knowing your time horizon, you will also need to know what your risk tolerance is. Simply put, this is how much risk you are willing to take on to get a good return. The higher your tolerance, the more you can bear large market price swings.
Part of knowing how to invest in the stock market is knowing what you can take psychologically. If large price swings are going to keep you up at night, you will want to buy investments that have less volatility (i.e. that change less in price over time).
Tip #7: Have a Good Financial Advisor
Whether you are a genius when it comes to stock market investing or just the average Joe, everybody needs to have good counsel on their side. As a result, it is prudent for any person looking to invest in consulting their personal financial advisor about their planned investments and goals with those investments before beginning.
Although they can be expensive, a sound financial advisor is worth his or her weight in gold. Most won’t charge you more than 2% of your funds per year to provide you with excellent advice, and I highly recommend getting one of these people on your side.
If you take care to observe all of the tips listed in this article, you will be well on your way to learning how to invest in the stock market in no time at all. Take heart, things may not go as well as you would hope at the beginning, but through patient study and (especially) through failure, you can learn how to be a successful stock market investor.
However, the worst thing that you could do would be to do nothing at all. Without action, inflation kills the value of your money over time. So, whether you want to learn how to invest actively (i.e. pick your own investments) or you want to let a company do it for you (i.e. use a robo advisor), get started now, and you won’t regret it!