Want to invest in stocks? Don’t jump in head first until you know the right steps to take.
Are you intrigued by the stock market, yet scared at the same time? Maybe you want to find a way to invest your money and get a higher return than your savings account offers. Fortunately, there are simple ways to start investing in stocks that don’t require excessive investments or have a large learning curve. With a few simple steps and the right brokerage, you too can become a stock investor. Check out the five tips and recommendations below before you start trading stocks.
1. Make Sure you are Ready
Just because you want to invest in stocks doesn’t mean you should right now. Ask yourself:
- Have you saved enough in an emergency fund? Ideally, you should have at least 3 – 6 months of expenses saved.
- If your employer offers a sponsored retirement plan such as a 401(k), are you maxing out your contributions or at least as much as your employer will match?
- Are you still carrying any credit card debt? If so, you should save some of your money to pay it off before investing too much.
- Do you need the money you’ll invest any time soon? Investing in stocks should be a long-term investment to allow for the ups and downs you will likely experience.
2. Get Familiar with the Stock Market
Once you're ready to start investing, ensure you have at least a basic understand of how the stock market works. Familiarize yourself with market fundamentals like types of securities, investment methods, fund performance metrics and high-level company financials. You can get a basic education from your chosen broker, especially if you choose an online broker.
How to choose investments
Also important is how you choose stocks, bonds and funds. Don’t invest in a company only because you like its name or love its products. Look at its history. How has it performed over time? How strong are the financials? What challenges might the company face in the next five years?
How to buy shares
Once you've located a company in which you want to invest, you need to choose how you will invest. Will you buy individual shares or fractional shares? Should you use dollar cost averaging?
How to safely practice trading
You may even wish to try investing in a demo account where you get ‘virtual money’ and can practice ‘trading’ in the stock market.
3. Choose Your Broker
When you're ready to actually start buying shares, you'll need to choose a stock broker. Online brokers offer low commissions, user-friendly platforms and access to educational material. While there are hundreds of options online, here are the top three choices:
Trading stocks 100% commission-free is Robinhood’s largest asset. This mobile app makes it easy for beginners to get started, however, it does lack in the research department. Robinhood doesn’t have an account minimum to get started and its platform is simple to use, especially for beginners. Its streamlined interface makes it easy to get comfortable trading stocks without getting overwhelmed. Additionally, you can buy fractional shares if you can't afford individual shares.
Fidelity offers zero-commission stock trades, plenty of research options, and a user-friendly platform. Fidelity doesn’t require a minimum account balance and they include stock research from 19 providers. You can trade stocks on the web-based or mobile platform, receiving real-time quotes and using their various strategy tools.
The Vanguard Group
Vanguard offers low-cost commissions and plenty of options for stock trading. Although they don’t have an online platform, they do offer online trading but not with the traditional dashboard that any of the above brokerages offer. It’s a bit tougher for beginners to get started with Vanguard Group as it’s better suited for retirement investors looking for long-term investments.
4. Fund Your Account
Once you choose your brokerage, it’s time to fund your account to start investing in stocks. Link your checking or savings account to your brokerage account and automatically transfer money over to start investing. Before you start investing your money, create a strategy. One recommendation is to start slow, investing in a few stocks at a time. Get your feet wet and make sure you are comfortable before you invest additional money.
5. Have an Exit Plan
We all know the stock market sees ups and downs. Make sure you have a plan for those downs. Will you stick it out or bail out? Planning ahead of time helps you avoid making knee jerk decisions that you regret after the fact. Set your lowest price point and make sure you don’t react unless the stocks get to that point.
Trading stocks can be fun and overwhelming at the same time. Do your research and find the brokerage you are most comfortable using. Don’t focus solely on the fees. Look at the account minimums, brokerage offerings, and support that you receive too. Remember, you’ll likely invest in stocks for the long-term; choosing a brokerage that can support you along the way is important.