Table of Contents
- 1. Build An Emergency Fund
- 2. Identify Your Goals
- 3. Identify Your Risk Tolerance
- 4. Start With Tax-Deferred Accounts
- 5. Find Your Brokerage Account
- 6. Consider If You Need A Broker
- 7. Focus on Diversification
- 8. When In Doubt, Stick With Index Funds
- 9. Don’t Time The Market
- 10. Stay The Course
- Final Thoughts on Investing In Stocks
A recent study found that only about half of Americans currently own stocks. However, investing in stocks is one of the best ways to secure your future and grow your wealth.
That said, it can be somewhat complicated and confusing to get started. Let’s get into what you need to know!
1. Build An Emergency Fund
We’ve all heard that saying of saving for a rainy day, and it’s especially true if you want to get started in investing.
An emergency fund provides valuable peace of mind for both you and your loved ones. It can safeguard you from high medical cost, job losses, or other financial catastrophes.
Experts differ on how much you should save within your fund. That said, you should have at least 3-6 months of expenses saved before you begin investing. If you have a very volatile career or dependents, you might want to consider saving up to 12 months of expenses.
2. Identify Your Goals
Do you want to save for retirement? Fund your child’s college education? Take a dream trip around the world?
Before you plunge into investing, you need to know why you are investing. This will help you identify the appropriate goals and percentages you need to set for yourself.
3. Identify Your Risk Tolerance
Even though investing may be a numbers game, it’s rooted in emotion. All investments come with significant risk, especially if you’re considering short-term movements.
There are a lot of ups and downs. It can be frightening to watch your portfolio change so dramatically.
There are no guarantees in the stock market. That said, it’s historically been one of the best ways to grow wealth in the long-term. Different investments come with varying thresholds of risk, and you’ll need to identify what’s comfortable for you.
4. Start With Tax-Deferred Accounts
Do you have access to a 401(k) at work? Can you qualify for an HSA or Roth IRA?
If so, these are great investment options because they allow you to invest your pre-tax income. Furthermore, many companies provide matches for 401(k) or HSA plans. That’s free money!
Tax-deferred accounts allow you to save for retirement while simultaneously lowering your taxable income.
5. Find Your Brokerage Account
Outside of employer-sponsored plans, you’re on your own for finding a brokerage account. Naturally, all of them have their own advantages and disadvantages.
Some will offer very low fees but minimal support. Others, on the other hand, will charge higher fees in exchange for extra help to investors.
Some of the most popular brokerage firms include:
- Charles Schwab
- TD Ameritrade
- Merrill Edge
These accounts typically offer a variety of additional products ranging from retirement accounts to money markets to high-yield savings accounts.
6. Consider If You Need A Broker
Nowadays, it’s easier than ever to get started investing. All you need is a reliable Internet connection and some fundamental knowledge.
That said, some people prefer to expert support of a stockbroker. Stockbrokers invest your assets in a separately managed account.
Your money is entirely customized to a plan that suits your particular needs. The downside is that they can be costly. Over the course of a lifetime, those fees can add up to hundreds of thousands in excess costs.
Furthermore, there are no guarantees in the stock market- no matter how much somebody claims to be an expert (read more here on that).
7. Focus on Diversification
We all know that saying, don’t put all your eggs in one basket. It also applies to the stock market in the sense that it’s rarely a good idea to solely invest all your money in one stock.
Sure, you may get lucky, and some people do. However, there is a considerable risk of only having one potential source of income.
If you want to focus on reducing your risk, focus on diversifying your investments. This includes having a healthy portfolio of stocks, bonds, and alternative assets depending on your age and individual needs.
8. When In Doubt, Stick With Index Funds
Unless you can tolerate losing a significant amount of money in the stock market, index funds are typically a safe bet.
They tend to come with very low fees, and they tend to perform well generally. You may not experience the same skyrocketed highs as you would with a single stock, but you also won’t likely experience the same drastic falls.
9. Don’t Time The Market
Everyone wants to buy when stocks are low and sell when they are high. And whether it’s cryptocurrency or individual stocks, everyone also wants to be part of the newest trends.
However, it’s impossible to calculate the market. Despite the media claims, we’ll never truly know when the next recession is coming.
When it comes to investing, time in the market tends to outperform timing the market. In other words? If you have the money, invest it now! Don’t wait until you think the prices drop to the “right number.”
10. Stay The Course
Investing can be an emotional and arduous process full of trial-and-error. Many people struggle and make poor financial decisions because they panic and sell.
This is why it’s so essential for you to set your initial goals. What are you saving for? What is your risk tolerance?
The stock market will ebb and flow, but if you stick with it for the long haul, there’s a good chance that you’ll come out on top.
Final Thoughts on Investing In Stocks
Investing in stocks doesn’t need to be a scary or complicated process. Today, it’s easier than ever for someone to get started with saving for their future.
Are you interested in learning more about investing and trading? Check out our article on mobile trading platforms today.