Investing in real estate and the stock market are two of the best wealth building tools ever created. In today’s modern world, it’s becoming increasingly easier to invest in the stock market.
In a not so distant past, investing in the stock market took a lot more effort than it currently does. With that said, despite how easy it is to invest in the stock market, it’s not so easy to make the right investments.
If you’re looking to get started, and you’re curious how to get started, this article is for you!
What Is the Stock Market?
First and foremost, what is the stock market? Simply put, the stock market is a public market where buyers and sellers can purchase or sell shares (also known as ownership) of a publicly traded company.
How Does the Stock Market Work?
The stock market consists of various exchanges and indices which all contain unique publicly traded companies. Stocks are either:
- Bullish, or expected to rise in value over a specific period of time
- Bearish, or expected to decline in value over a specific period of time
- Neutral, or expected to stay flat over a specific period of time
Hundreds of millions of people have their money linked to the stock market, either directly or indirectly. Pension funds, 401k’s, 403b’s, and personal investment accounts are all tied to the stock market.
The most basic economic rule of supply and demand can certainly explain the inner workings of the stock market.
Why Is Investing Important?
Investing has numerous benefits, and its importance cannot be ignored. The most notable reasons to invest include:
- Inflation reduces one’s purchasing power over time. For example, if inflation is growing at 3% per year, and your savings account is paying 0.25% interest, you are losing 2.75% in purchasing power per year as your dollar is not worth as much due to the inflation. Investing in the right assets can help you generate a greater return than 3%, and will help keep your purchasing power strong.
- If you make the right investments, you can increase your assets over time. If you have $5,000 to invest and you earn 10% interest in year 1, you’ve generated $500 in profit. In year two, you can invest $5,500 and earn a rate of return on that money.
This not only helps you compound your money and watch it increase over time, this can also become a secondary income stream.
Age Requirements for Investing
If you are a resident of the United States, you’ll need to be 18 years or older to invest in the stock market. With that being said, if you have a strong desire to learn more about the stock market, your guardian can set you up with a ‘paper account’ or ‘mock account’ through their brokerage.
These paper or mock accounts simulate real market conditions and are a great way to get familiar with the platform, various charts and technical analysis techniques, and will also keep a log of your success. This is 100% risk free as this does not run off of real money.
All the money is fictitious, but the market conditions mirror the second-by-second market performance of any specific stock.
How Much Money Do You Need to Invest?
There is not an amount that’s too much, nor is there an amount that’s too little. Some brokerages will require you to deposit $X amount to open an account, but that doesn’t mean you need to invest that entire amount on a singular stock.
For example, brokerage ABC may require a $1,000 opening deposit, but if you wanted to, you could invest $10 into a stock. If you are new to investing, here are some of the best investing apps for beginners that could help guide you to get started.
How Much Should You Invest in Stocks for Your First Time?
Understanding how much you should invest in stocks for your first time has a layer of complexity involved. It’s recommended that one invests a conversative amount for the first time, but everyones converserative amount is different.
A doctor with income of $450,000 may feel like $50,000 is a conservative investment, whereas someone with income of $30,000 a year may feel as though $5,000 is a conservative investment. Understanding what that conservative amount is takes work, and a professional financial advisor can help you understand exactly what that number is for you.
4 Simple Steps to Start Investing in the Stock Market
Even though picking the right investments is tough, investing in the stock market isn’t a challenge. Here are the 4 simple steps you’d need to follow to get started in investing in the stock market.
Step 1: Open a Brokerage Account & Set Up an Account
The first step to investing in the stock market is to determine which online brokerage you’d like to partner with. There are variables you’ll want to consider, such as: fees, funds clearing period, ease of use of their platform/mobile app, and training information.
There are many options to choose from, here are some of the most common.
E-trade is an online brokerage that offers competitive pricing and rates.
- The platform is easy to use
- Overall, the pricing and rates are very competitive. You can trade stocks without paying a fee
- From an educational standpoint, e-trade does not offer as many training classes or material as some other brokerages
Charles Schwab was started in 1971, and today, you can open a Charles Schwab brokerage account in just 10 minutes!
- The mobile app has great reviews, allowing you to check on your investments while on the run
- Charles Schwab is also well known and respected for outstanding customer service
- Their rates are also very competitive
- Charles Schwab is more respected from an investing standpoint. If you’re looking for a robust trading platform, you may find Charles Schwab lacks in many technical analysis systems.
TD Ameritrade is one of the largest online brokers, and for good reason.
- There is no account minimum balance requirement
- Their training platform is second to none. TD Ameritrade offers thousands of hours of training material. This material spans from investing in stocks, investing in options, trading stocks or options, and standard financial acumen.
- The mobile platform, and ThinkorSwim software, is absolutely phenomenal
- Their pricing and rates remain competitive, despite how much this platform offers
- At first glance, you may get overwhelmed with their ThinkorSwim software or mobile at. There is a plethora of information out there to choose from.
- If you’re not familiar with trading/investing, you definitely should consider taking one of their free classes on how to use their platform and how to set-up your screen.
Interactive brokers are gaining in popularity as they do a great job offering a global footprint.
- You can fund your account with 23 different currencies
- They operate in 33 countries
- They offer a wide range of products
- Although their fees aren’t terrible, they are not as affordable as other platforms
- Opening an account is not as simple as TD Ameritrade or Charles Schwab
Step 2: Deposit Your Funds
Once you determine which brokerage firm you want to partner with you, you’ll need to deposit money to get started. This is generally pretty easy to do, and a clearing period may be between 24-96 hours.
Step 3: Choose a Stock
Once your money finally clears, you are ready to trade/invest in stocks. As mentioned previously, investing in stocks isn’t complicated, but picking the right stock(s) is.
There’s a lot of information to consider before investing in any stock.
Beginner Stocks to Invest in
Step 4: Purchase It!
You’ve done the analysis, you know what stock you want to buy and how many shares you’ll like to purchase. What’s next? Purchase it!
You can submit a market or limit order to purchase your shares.
Educate Yourself Before Investing
Investing is serious business and comes with a great deal of risk. It is possible to lose 100% of your investment, and purchasing stocks ‘blindly’ or without analysis, is a recipe for disaster.
Working with a professional financial advisor is a great way to make sense of the investing world. Professional financial advisors will review your income and spending habits, and will help determine how much money you can/should invest.
To take it one step further, they’ll also help you determine your risk tolerance, and what investment vehicles/stocks are right for you.