With the rollercoaster ride that’s been going since 2008, many people wonder if the stock market is still a viable option for making money and adding to a portfolio. It may not be for the faint of heart or anyone who’s looking for fast cash, but the stock market can still be a sound investment strategy.
As a beginner, the stock market can be quite intimidating. It seems like a huge machine that will swallow you alive if you make one misstep. There have been plenty of people who have lost money, but there are just as many who have made money by knowing when and what to buy. This guide will provide tricks of the trade that give beginners an understanding to how to get started on the stock market.
Don’t Get Into the Game Until You’re Ready
Before putting money into the stock market, put money into your bank account. Everyone should have enough to cover at least three to six months of expenses at any given time. You can start researching now, but hold off on buying stocks until you’ve saved enough to handle any unexpected emergencies.
The good news is you don’t have to have a lot of disposable income to get started. As little as $1,000 is enough to begin a decent portfolio. You can even start investing with $25 an grow it from there. The more you have to invest, the more you can make (or lose) in the market.
Become Familiar With the Options
Some people forgo stocks because there are so many options, and they are afraid of choosing the wrong one. It’s time consuming and at times confusing, but becoming familiar with the different types of stocks is the first step to successful trading.
Some types of stocks are safer (relatively speaking) but have a lower return while others like binary options carry more risk and a bigger reward. Many advisors start investors out with exchange-traded funds (EFTs) or mutual funds since they group together diverse funds and negate risk. At the end of the day you have to be familiar with your options to find stocks that what will work best for your timeline and risk threshold.
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Investing in stocks is just like saving money or paying down debt – you should have a target goal. Setting financial goals gives you benchmarks and helps guide you along the way. Goals will be a big factor in determining a timeline as well as how much risk you are willing to take.
The Age Factor
Just like every sport, age is a factor in stock buying, selling and trading. When you are younger you can take more risk because you have more time to make up for loses. The closer you are to retirement the more conservative you’ll need to be. Most robo-advisors will help you handle risk allocation to make sure your not being too conservative while young or risky when older.
Consider the Fees
There are always going to be fees involved when you’re investing in the stock market, even if you’re doing it yourself. This varies significantly so always check before you pull the trigger. If you aren’t investing a lot up front (which is a sound idea for a beginner) then limit your orders so the fees balance out.
Start Keeping an Eye on the Major Market Indices
Before buying stock it’s advisable to know what the current environment is like (is it a bull or bear market) and what factors are affecting the market. Anything from a natural disaster to war to a country finagling with its currency value can impact the stock market in a big way. The S&P 500, Nasdaq composite, Nasdaq 100 and DJIA are some of the major market indices that can be used to track changes and monitor different segments of the market. Most are updated daily.
Keep Emotions Under Control
Investing in the stock market can incite every emotion you have. Heightened emotions are the root cause of big swings in the stock market because investors let their emotions (fear, greed, pleasure, elation) override logic. Speculation that’s fed by emotions is usually behind every short-term movement. Those that keep a cool head are the investors who are able to ride out the lows and take advantage of the highs.
Not Sure How to Start Investing?
I opened up my first investment account back in 2012 after paying off a lot of debt. That account was with Betterment. Since then, I haven’t looked back. I love the simplicity and ease of use they provide. I think their system is good for any type of investor. If you want to get into investing, check out Betterment.