Stocks can be an intimidating investment for first-time investors. They seem like a complicated and unapproachable concept, but they’re really not that scary! Stocks are simply a small piece of ownership in a company. When you invest in stocks, you’re essentially buying a stake in that company and its future potential.
When the company performs well and its stock price increases, your initial investment will be worth more than when you bought it. Keeping these tips in mind while investing in stocks can help you get started with less stress and more success.
With any investment, there are several things to consider before diving in headfirst. However, because stocks require a slightly larger investment than other investments like cash or mutual funds, it is even more important to think things through before making an investment.
Do you have a nest egg put away somewhere? If so, how much do you have, and what do you think is the best way to invest it? If you’re just starting out in your career or feel you need some additional funds to meet some financial goals, investing in stocks might be something worth exploring.
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While there are plenty of ways to invest your money, stocks are one of the most common and accessible ways for the average person to put their money to work and build a portfolio that can grow over time.
Stocks are a type of security that allows an individual investor to own a small piece of a company. There are many ways to invest in stocks, from directly buying stock in a company to investing through mutual funds.
You may also consider investing through equity crowdfunding sites like Kickstarter for startups if you want to get involved with young companies before they go public. In this article we’ll dive into 14 fantastic tips on how you can invest in stocks.
1. Educate Yourself on How to Invest in Stocks
You may think you know how to invest in stocks, but do you really? The first step in any investment plan is to educate yourself. The more you know about the process and your options, the better off you’ll be in the long run. While there are many ways to invest in stocks, you’ll need to decide which is best for your situation.
If you’re just getting started, you may want to consider a robo-advisor. A robo-advisor is an online investment tool that allows you to invest in stocks based on an algorithm that assesses your risk tolerance and time horizon.
2. Check Your Confidence in Your Investment Choice
One of the most important steps to take before investing in stocks is to make sure you have a high level of confidence that you’ve chosen the right investment. If you don’t have full confidence in the stocks you’re buying, it’s likely you won’t be happy with the results. It’s important to understand that when you’re buying stocks, you’re not guaranteed a specific return or profit.
You can’t know what an individual stock is going to do, but you can know that the market as a whole goes up over time. Understanding this can help you have more confidence in your investment choices. If you have confidence in the stocks you’re investing in, you’ll be less likely to get spooked if your stocks drop in value for a few months or even years.
3. Determine Your Risk Tolerance Beforehand
Before you start investing in stocks, it’s important to take the time to determine your risk tolerance. In order to do this, you’ll need to know a few things about yourself. How much time do you have to invest?
How much are you willing to lose? What are your goals? While these questions may seem obvious, it’s important to really reflect on each of them. Are you in a position where you can afford to take on more risk and potentially see your stocks lose value in the near term but gain value over the long term?
Or are you in a position where you need your stocks to increase in value as quickly as possible? If you need to see quick results, you may want to invest in lower risk investments like bonds or gold. If you have a lot of time and can afford to wait out a downturn, you may want to invest in higher risk stocks.
4. Be Committed to Stay the Course
Investing in stocks is a long game. It can take months, years, and even decades for your stocks to show significant growth, depending on the investment. If you’re looking for short-term results, investing in stocks might not be the best option for you.
While you won’t be able to time the market perfectly, you can do your best to track your investments and make adjustments along the way. It can be helpful to set goals for yourself before you invest.
For example, if you want to use stocks to save up $3,000 in one year, you can track your investment to make sure you’re on track to meet that goal.
5. Watch Out for Fees and Commissions
Before investing in stocks, it’s important to understand how much they’re going to cost you. Different investment vehicles, like mutual funds, have different fees and expenses, and stocks may come with an additional commission.
It’s important to keep an eye on your investments and make sure you’re not paying more than you have to for them. Check your investment statements regularly, and if you see fees or commissions that seem out of place, reach out to your investment company to ask about it.
6. Research is Key
While it’s important to pick investments you believe in and have a high level of confidence in, research is key. You don’t want to pick stocks at random, but instead carefully research the investment vehicles you decide to use.
This can help you make more informed decisions, and it helps mitigate some of the risk that comes with investing in stocks. If you’re not sure where to start researching, you can start with financial websites or apps like Morningstar or ValuePenguin. You can also talk to a financial advisor about your options.
7. Watch Out for Fees
While investing in stocks can be a great way to grow your money over time, it’s important to be aware of the fees and costs associated with investing. You’ll likely have to pay a fee to buy stocks from a broker or fund provider. You may also have to pay a fee for each trade you make.
These fees can add up quickly over time. If you’re investing in stocks, make sure you know what you’re paying for and look for ways to reduce costs. You may be able to find low-cost funds or invest in stocks directly without a broker.
8. Don’t Just Buy and Forget
Once you’ve chosen the investments you want to add to your portfolio, don’t just buy and forget about them. It’s important to stay on top of your investments and review them periodically.
In particular, it’s important to track the overall performance of your investments and make sure they’re headed in the right direction. If you notice your investments are falling behind, you may want to consider making adjustments to your portfolio.
For example, if you have a lot of money invested in stocks from the 90s, it might make sense to start shifting some of those investments into more recent offerings.
9. Don’t invest all your eggs in one basket
One of the biggest mistakes novice investors make is putting all their eggs in one basket. It’s easy to start investing and get excited about the potential of your stocks, but you should resist the urge to put all your money into one investment.
While it might seem like a good idea to put all your money into a single investment and wait for it to pay off, this is an incredibly risky move. If you lose your bet, you’ll lose all your money.
Instead, you should try to diversify your investment portfolio as much as possible. This will help you avoid putting all your money into a single investment and losing everything if that investment goes south.
10. Don’t forget to diversify
Now that you’ve learned how to invest in stocks and how to avoid some common mistakes, you may be eager to start investing and building your portfolio. Before you jump in, though, it’s important to remember to diversify.
Don’t just invest in one type of stock or one company. Instead, try to diversify your portfolio as much as possible. You may want to invest in multiple stocks from different sectors or in mutual funds that are spread across a wide variety of stocks.
You can also diversify your investment portfolio by investing in different time periods. If you’re nervous about investing in stocks because you’re worried about another economic downturn, you may want to wait until you feel more comfortable investing.
11. Timing isn’t everything
The short-term price fluctuations of stocks are largely irrelevant for long-term investors. It’s important to keep in mind that if you invest in stocks, you’re signing up for a long-term commitment.
If you’re looking to buy Apple stock today and sell it tomorrow, that isn’t going to work out very well for you. What’s the best time to buy stocks? Generally, the best time to buy stocks is whenever you have the money and are ready to start investing.
Of course, you can’t buy anything if you don’t have any money saved up. You should first save up a good chunk of money in a savings account for emergencies, as well as for future financial goals like retirement.
12. Don’t only rely on your broker’s advice
There’s a reason why you should never go to a doctor who only tells you to take some pills. While many brokers and financial advisors make some great recommendations, they aren’t fiduciaries, and aren’t required to put your interests above their own.
What are fiduciaries? Simply put, fiduciaries are professionals who have a legal obligation to act in the best interest of their clients. Brokers, financial advisors, and even some financial planners are not fiduciaries.
This means that they aren’t legally required to act in your best interest. Which is why you shouldn’t solely rely on the advice of your broker or financial advisor. You can use the tips in this article to help you make the best choices for your financial future.
13. Don’t forget to tax-loss harvest
Tax-loss harvesting is the process of selling losing investments at the end of the year and replacing them with new investments. The idea behind it is that you sell your losing investments at the end of the year to offset the taxes from your gains and replace them with fresh new investments.
You can use the free investment tracking tool, Personal Capital, to easily harvest tax losses and keep track of your investments at the same time. Why should you tax-loss harvest? It’s an easy way to boost your annual return and potentially save on taxes. It’s also beneficial for keeping your investing portfolio balanced. What to harvest? Harvest your losers that meet the following criteria:
14. Have a game plan before you invest
You might have heard the phrase, “No plan survives first contact with the enemy.” Well, the same can be said of investing without a game plan. What’s your goal? What do you hope to achieve with your investment?
Do you want to save up for retirement? Do you want to pay off debt? Do you need extra income to help cover living expenses? These are all important things to consider before you invest. You might want to invest in high-risk stocks if you want to save up for retirement and have a long time horizon.
By contrast, if you want to use your investment to pay off debt, low-risk stocks might be a better fit. What’s your risk tolerance? Risk tolerance is how much risk you’re willing to accept in your investment portfolio. Depending on your risk tolerance, you might want to invest in stocks, bonds, mutual funds, or exchange-traded funds.
How do I invest in stocks for the first time?
Interestingly, the easiest method to buy stocks is through an online stockbroker. After opening and funding your account successfully, you can buy stocks via the broker’s website in a matter of minutes. Other means include using a full-service stockbroker, or buying stock directly from the company.