Investing in stocks and for the future can seem difficult, confusing and daunting at first. In actuality it is quite simple. There a few short steps on what to think about and what to do, for you to be all up and running.
Step One: Financial Goals
Part of investing in stocks is to keep in mind what you are making this investment for. Are you saving for retirement, to buy a house, college for yourself or your kids? It could potentially be all of them. Once you have a more clear understanding of what your investing purpose you can start looking into what how to invest in the stock market.
You have to also ask yourself what type of investor you are. Do you want to personally be active in your investment approach or just put some parameters and let the account do the work? Let’s help you give more clearness about the choices.
Active Investor: This Do-it-Yourself (DIY),
Passive Investor: Here you have someone manage the investment process and selection for you. Here you set your specific goals and risk parameters and the investments are made for you. Robo-advisors might be a good option for you. Almost all big brokerage firms offer these type of services today.
Step Two: Open Your Stock Account
Active Investing: Next step is to open an account. If you are an active investor, you will need to open a brokerage account. When opening a brokerage account you want to consider a couple of things
- Product Offering: Does the broker offer wide range of stocks and products for investments
- Commissions: Look at the how much the broker chargers per trade
- Annual Fees: Are there any annual fees and if so how much are they?
- Education and Support: Will the broker offer good educational and customer support?
- Minimum Deposit: Does the broker have a minimum deposit and if so how much?
Below is a 3 good options for getting started into investing.
Ally Invest
- Trade Fee: $4.95
- Account Minimum: $0
- Promotion: Up to $3,500
Ally Invest offers excellent options for low cost brokerage. They have very low fees, no account minimum, good research tools.
Merrill Edge
- Trade Fee: $6.95
- Account Minimum: $0
- Promotion: $100-600
Merrill is another top option. They have very good customer service, access to good third-party research low trading fees and potential for free trades if you are a Bank of America customer.
E-Trade
- Trade Fee: $6.95
- Account Minimum: $500
- Promotion: Up to $500
E-Trade is one of the most known brokerage houses. Merrill is another top option. E-Trade has online platforms that make it easy to invest. In addition, they have very good customer service.
Passive Investing: Passive investing through Robo-advisors offers all the benefits of stock investing, without having to take the hands-on approach of the investor making active choices. The various Robo-advisors will ask you about your investing goals and time-horizon when you sign-up for the accounts. This will help them build and design a portfolio specifically made for you.
All Robo-advisors will charge you a management fee. These usually range from
0.25-0.50% of the invested amount. This might sound high, but it is substantially
lower than what
Below is 3 very good options on Robo-advisors.
Wealthfront
- Management Fee: 0.25%
- Account Minimum: $500
- Promotion: $5,000 (amount of assets managed for free)
Betterment
- Management Fee: 0.25%
- Account Minimum: 0
- Promotion: Up to 1 year of free management
Wealthsimple
- Management Fee: 0.40%-0.50%
- Account Minimum: 0
- Promotion: $10,000 (amount of assets managed for free)
Step Three: Difference between Stocks and Exchange-Traded Funds
When investing buy yourself (Active Management) it is important
Individual Stocks: It is fairly straight-forward here. If you want to buy a specific stock, let it be Amazon or Apple you can easily buy shares in these. You can build a portfolio with various individual stocks that you believe in.
Exchange-Traded Funds (ETFs): Exchange-traded funds allows you to buy small pieces in many different stocks. There different themed exchange-traded funds. There are ones that replicate different indexes such as S&P500 or NASDAQ. Or it be that focuses on industry or geographic region, such as semiconductors or Europe.
The upside with investing in ETFs is that you get a natural diversification, which lowers your risk. On the other hand, it is much less likely that ETFs will have massive increases as they are diversified amongst several different stocks.
Step Four: Decide Your Budget
You don’t need that much money to start investing in the markets. It can be as little as a couple of hundred dollars.
How Much To Invest: Often for new investors, it is difficult to know how much you need to start investing. People believe one needs several thousand dollars to start investing. That is actually not correct. The minimum that is needed is based on the share price of the stocks you are looking to buy. Prices can range from a couple of dollars to several thousands. If you want to invest in a mutual fund that focuses on sectors or regions, you can buy an exchange-traded-fund (ETF) which costs can be less than $10.
How Much To Invest in Stocks: Stocks are often more risky than other asset classes such as bonds. Let say you are young and 25 years old and you are investing for your retirement, you a much longer time horizon than someone that is 60 and looking to retire within next couple of years. A younger person might chose to have say 75% of his investments in stocks/stock funds while an older person would chose to have less.
Step Five: Let’s Start Investing!
There are various strategies and ways of investing. This is something that might scare most non-professional investors. In actuality, the most successful investors have put all their focus on just the basics. Warren Buffet, the most successful investors over last 50 years, famously said the best investment is just to buy a low cost S&P 500 index fund (ETF). Other ways is to buy stocks in companies which products you like, use and believe in the long-term potential. If you chose to buy individual stocks, make sure you do most amount of learning about the companies and research that you have time for.
