Investing in the Stock Market for Beginners

Stock Market Basic’s

Investing in stocks means buying shares of ownership in a public company. The goal is the company grows and performs well over time and your shares become more valuable, and other investors may be willing to buy them from you for more than you paid for them. That means you could earn a profit if you decide to sell them.

By investing your money regularly, you may be able to increase it many times over with time. That’s why it’s important to begin investing as early as possible. Whether you have $1,000 set aside or can only manage an extra $25.00 a week, you can get started. 

To paraphrase Warren Buffett – “investing is the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power in the future.

What is Your Risk Tolerance?

Risk tolerance is your ability and willingness to stomach a decline in the value of your investments within your portfolio. Stock volatility, market swings, economic or political events, and regulatory, or interest rate changes affect an investor’s tolerance for risk.

Stocks also get categorized by the total worth of all their shares, which is called market capitalization. Companies with the biggest market capitalizations are called large-cap stocks, with mid-cap and small-cap stocks representing successively smaller companies. They all have different levels of risk.

What Are Your Investment Goals?

When opening a brokerage account, an online broker will ask you about your investment goals and your risk tolerance. I personally love M1 Finance!

Investing should start with a specific goal corresponding to an investing timeline (how long you plan to hold an asset before selling it). The goal could be anything: buying a new car, purchasing a home, or retiring in 40 years.

Once you’ve identified a goal, investment planning can begin. How much money can you devote to it? How much time do you have?

What is Your Investing Style?

Some investors want to be active in managing their investments, while others prefer to set it and forget it. Your preference may change but decide on an approach to get started.

A stockbroker is a type of broker that allows you to buy and sell stocks, bonds, and other securities. When you choose a broker, you open a brokerage account, which is the first step to becoming an investor. 

There are a few types of Brokers:

  • Full-service brokers: Traditional full-service brokers offer managed accounts by a professional advisor. With a managed account, you agree to give the broker authority to make decisions on your behalf
  • Discount brokers: Discount brokers execute trades on your behalf but do not offer tailored advice. Preferred by investors because they’re more affordable and charge zero commission fees.
  • Robo-advisors: Robo-advisors are automated investing platforms that select and manage investments on your behalf, typically in the form of ETFs or index funds. Robo-advisors appeal to those new to investing or those who prefer to be hands-off. 

There are Different Strategies for Investing

Value Investing

Growth Investing

Momentum Investing

Dollar-Cost Averaging

Stock Market Simulators

People new to investing who want to gain experience investing without risking their money in the process may find that a stock market simulator is a valuable tool. There are many trading simulators available, including those with and without fees.

Stock market simulators offer users imaginary, virtual money to invest in a portfolio of stocks, options, ETFs, or other securities. These simulators typically track price movements of investments and, depending on the simulator, other notable considerations such as trading fees or dividend payouts.

Investors make virtual trades as if they were investing with real money. Through this process, simulator users can learn about investing and experience the consequences of their virtual investment decisions without putting their own money on the line.

The Bottom Line on Investing

If you’re just starting out as an investor, it’s possible to invest in stocks with a relatively small amount of money. You’ll have to do your homework to determine your investment goals, risk tolerance, strategies, and the costs associated with investing in stocks and mutual funds.