Investing in stocks, if you have the funds to do so, has many benefits. This might include a higher return than typical savings account to help build your nest egg faster. If you’re already contributing to a retirement plan, you are already investing. If you’re ready to invest in stocks but are unsure about where to begin, here are six tips to help you get started.
- Determine your goal for investing. Perhaps you just want to save for the future and have no particular goal other than that. Maybe you want to get a jump start on saving for retirement, saving for your child’s college education, or for a down payment for your first home. No matter what the reason, you should determine your goals and your priorities. This will help you make informed decisions on whether your investments will be short-term or long-term, as well as other considerations we will discuss below.
- Set a budget to invest in stocks. Although you may not think you have enough flexible income to invest in stocks, you can start with a very low amount. Look at your income and expenses to determine how much you can realistically invest on a regular basis.
- Establish your timeline. Will you need your money in three months, three years, or not until retirement? That will help determine the type of investments you should make.
- Determine your risk tolerance level. Risk tolerance is the level of risk an investor is willing to take. Risk can mean an opportunity for a big return. It can also mean the potential for loss. The stock market can be unpredictable, taking big swings up and down. Your risk tolerance level is also determined by your individual financial situation. You may not be in a financial position to be comfortable with much risk. Investments with higher expected returns, such as stocks, can be riskier than a more conservative mutual fund. Your timeline will also help to determine your risk tolerance. The faster you need your money, the more a downswing in the market can hurt. Read more about different investment options based on risk below.
- Find the right investing platform. The type of investor you are, hands-on vs. hands-off will help you determine the best investing platform for you. If you enjoy researching companies and following the stock market on a daily basis, then you are probably hands-on. If you don’t have time for that or find it stressful, you are more of a hands-off passive investor. Passive investors will work better with a buy-and-hold strategy. Members Financial Services at Choice One can help you with your investment goals. Passive investors might also benefit from robo-advisors such as Betterment or Wealthfront. Here are a few other popular investing apps and sites to help you start your research. Apps such as Fidelity offers a range of commission-free ETFs that would enable many investors to build a balanced portfolio. They also offer fractional share investing, meaning you can invest lower dollar amounts. TD Ameritrade offers a commission-free pricing structure for stocks and ETFs. TD Ameritrade also offers research, information, and portfolio analysis. Robinhood has been popular with younger, hands-on investors. It allows you to buy and sell stocks for free. Robinhood also allows the purchase of fractional shares and cryptocurrency investing.
- Investing takes a watchful eye. A good investor doesn’t “set it and forget it.” Check on your investment portfolio regularly and re-evaluate if your portfolio is meeting your goals.
Research is important when you want to invest in stocks
Doing the appropriate research will help you understand the risks involved in investing. It will also help you better prepare for the type of investing that best suits your financial goals. Research will help you understand the difference between different investment products, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some are riskier than others, while some will help you better diversify your portfolio.
If you really enjoy in-depth research, are comfortable with risk, and are hands-on, investing in individual stocks might be a good option for you. Although the prices of some stocks may seem high, you may be able to buy a fraction of a share. ETFs are a bit safer than individual stocks. They comprise a variety of stocks from the same sector or stock index. Mutual funds are similar to ETFs as far as diversification, but they have managers who manage the fund and pick specific stocks to try to beat the market index. What you invest in will be determined primarily by your risk tolerance.
Investing now can help you build your financial security!