How to Get Started in Investing with the Stock Market
If you’ve always wanted to invest in the stock market, but aren’t sure of where to begin, you will want to read this post. For those who have never invested in the stock market, it can be a bit intimidating. After all, stocks are an entirely different thing from savings accounts, money market funds, or certificates of deposit.
However, getting started saving for your future doesn’t have to be complicated. The steps below are a very general overview of how you can get started investing in the stock market.
Check Your Financial Situation
Before you get into investing, the most important thing you need to make sure of is that your overall financial situation is in a good position. This means taking into consideration everything from your total income to your household budget to any debt you are carrying.
A few things to consider:
- Your Employment – is your job secure? If there is any possibility of layoffs coming up, now is not the time to start investing in the stock market.
- Your Income – is your income secure enough to allow you to begin investing? If things are going to be tight, don’t do it.
- Debt – take a look at your debt to income ratio. If you have a significant amount of outstanding credit or debt, it’s best to pay that down before you begin investing. Never invest money you cannot afford to lose.
- Family situation – what is your family situation? Are you expecting a new baby or about to begin paying for college for an older child? If so, you need to make sure you have enough income to keep your family stable before you start investing.
- Your household budget – the same holds for your household budget. Make sure you have plenty of room in your budget to begin directing cash into your investment venture. If you do not have enough ‘wiggle room’ to cover any unforeseen or emergency financial situations, you are better off not investing until you can safely afford to.
Before you put any money at risk, you should have some put away in cd’s, money market accounts or another type of low-risk account where you can get to it if needed. A good rule of thumb is to have at least three month’s worth of living expenses put back.
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Make Sure You Understand How Investing in Stocks Works
Whether you opt the DIY method or go with a broker, you need to have a general understanding of how the markets work and how investing in general works. But don’t worry. Stock investing doesn’t have to be complicated. With a little research, you can learn the basics. And if you opt to go with a broker, they can help you as well.
You also need to keep up with the market. One way to do this is to check a stock market index like the Dow today and every day.
This index is based on 30 large, publicly traded companies on any given trading day, and is often used by investors and the media as an overview of the health of the stock market as a whole since it pretty much mirrors the performance of the economy on the whole.
Keeping up with the Dow today and every day will give you a pretty good idea of how the market is fairing.
Select your investing style
Next, you need to decide your investing style. There are several ways to approach stock investing based on your investing style. Are you the DIY type who would prefer to choose stocks and stock funds yourself? If so, perhaps an online brokerage account would work best.
Or are you the type that would prefer someone else to manage the process for you? If so, then a brokerage firm or a robo-advisor may be your best bet.
Once you have a preference in mind, you’re ready to open an investment account, set a budget and get started.
Once you have an account open and have selected your budget, the next step is to choose the stocks you want to buy. When investing in stocks, you have a couple of choices. One of the more straightforward methods is to buy a mutual fund or an ETF (exchange-traded fund).
An ETF or mutual fund is one that owns all of the stocks in an index, such as the Dow Jones Industrial Standard mentioned above. So by doing this, you’re basically buying all of the stocks within the index you choose and are participating in the general growth of the entire market.
A second option is to buy individual stocks, although this is the riskier option. If you pick a great stock, it can rise over time and produce high returns. But if you choose the wrong stock, you can lose your entire investment.
That’s why everyone will tell you to build a diversified portfolio with multiple stocks so you are protected against an unforeseen event that could hit one of your stocks hard.
Once this decision is made, you have essentially begun investing in the stock market.
Investing in the stock market can be a wonderful way to make some extra money. However, before you begin you should follow the steps above to make sure you are doing it correctly. Hopefully, you can maximize your returns while minimizing your costs, and become a success when investing in the stock market.