Are you finally ready to stop talking about investing and actually start doing it? Do you want to start investing and start building real wealth, instead of just hoping to get rich someday?
Then it’s time to start investing, for real. It’s not hard, nor is it expensive. And once you get started, it’s not as scary as you think.
Sure, investing always involves risk. But so does keeping money in a low-yield savings account. When you do this, inflation will destroy your wealth-building potential. Even investing in basic stocks and bonds is better than that.
So what is the best way to start investing? What are the first steps to take as a new investor? Keep reading to find out how to start investing today.
1. Determine Your Investing Budget
When you first start investing, it can be tempting to dump as much money as possible into your investment accounts. And while investing as much as possible is a good idea, you don’t need to do it all right away.
So don’t liquidate your lifesaving or sell your house just yet. Rather, determine a monthly budget that you can set aside specifically for investing. If you can, find ways to cut expenses each month to increase the amount you can invest.
2. Educate Yourself on Investing Options
Want to know how to get started investing? It’s all about education. You can’t just open an investment account and start picking stocks, expecting to get rich.
You need to be familiar with the different types of investments you can purchase.
Purchasing a stock of a company is like purchasing a tiny piece of ownership in that company. Large corporations will sell stock to the public in order to raise funds to grow the business.
As a result, these investors become shareholders, otherwise known as part-owners of the company. When a company is growing, its stock prices generally appreciate in value. But when these companies are struggling, or when the market is fluctuating, stock prices can drop.
If you place to choose your own stocks, make sure to focus on a specific industry to become familiar with, so you aren’t just picking stocks out of thin air. Or perhaps consider copy trading. For instance, you may want to educate yourself about FANG stocks (Facebook, Amazon, Netflix and Google), or Gamestop and some of the more widely traded and valued stocks.
Bonds are a safer form of investment compared to stocks. Instead of ownership, bonds are actually loans. When agencies, such as governments, need to raise funds, they can sell bonds.
When you buy and hold onto a bond, you’ll earn a small amount of interest over time, before finally getting paid back by the bond issuer on the set repayment date.
The value and certainty of bonds don’t fluctuate nearly as much as stocks do. But they also won’t achieve the high gains often experienced by stocks, either.
There are a few types of funds that you can invest in as well. Mutual funds are collections of stocks handpicked by fund managers. These managers are doing their best to create a portfolio of growth stocks to ensure their investors receive the best returns possible.
But since mutual funds are actively managed, there are more commissions you’ll have to pay.
Index funds are similar to mutual funds, in that they are a collection of different stocks and assets. But they aren’t actively managed, meaning there are fewer, if any, fees. These generally try to mimic indexes such as the S&P500.
To Trade or Not to Trade
Many investors like to actively trade stocks on a daily basis. Others invest passively, rarely, if ever, trading.
These are two very different investing styles. Those who trade often spend many hours a day analyzing trends on wall street to determine which stocks to sell and which to buy on a minute-by-minute basis. They do this to earn a profit, which can grow to become a sizeable income.
It takes a lot of knowledge and experience to become a successful trader. Visit Kjtradingsystems.com to learn more about building effective trading systems.
3. Open a Brokerage Account
Once you have an idea of what to invest in, it’s time to open up an investment account, otherwise known as a brokerage account. Wondering where to start investing?
Today there are many popular brokerages and even apps that allow you to invest. Find one that allows you to invest in the specific assets you want to buy, that charges the least amount of fees.
4. Invest All at Once or Over Time?
If you have a chunk of change ready to make your first investment, you are probably wondering what the best approach is. Some people like to invest everything all at once.
However, others prefer dollar-cost averaging. With the latter, you spread your investment out over a period of time.
Imagine investing $1,000 all at once into a stock, and that stock plummets the next day. Now your $1,000 is worth far less.
But with dollar-cost averaging, you could instead invest $33 over the course of 30 days, so that your investment is balanced over time.
5. Set Up Recurring Deposits
Once you’ve made your first investment, it’s time to set up your automatic investing machine. With the budget that you’ve already created, set up an automatic deposit from your bank account to your investment account each pay period.
That way, every time you get a paycheck, you pay yourself first, before spending money on expenses.
6. Let It Grow
Once you have a decent amount of money in the market, it can be tempting to check the status of your stocks every day, or even multiple times a day. But obsessing over every little fluctuation isn’t going to make you richer.
In fact, it’s going to make you anxious and stressed, which is terrible for your physical and mental health.
Commit to letting your investments grow and not constantly checking the tickers. Don’t pull your money out the moment you experience a downturn. Just get comfortable riding the waves.
Start Investing Today
Now that you know how to start investing money in the stock market, it’s time to make it happen. Determine your budget and read up on the main investment classes.
Commit to reading a few books and listening to podcasts on the subject to get a baseline idea of how investing works. Then, open an account and just start investing today.
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