Investing in the Stock Market: Where Should You Begin?

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For years, a poor economy meant that investing in the stock market wasn’t possible for most Americans. But now that the economy is better and people are earning more, investing is more of a possibility. If this is your first time considering buying stocks, here are a few points to keep in mind to help you get started.

What Are Stocks?

When you buy a company’s stock, you become a partial owner of that company, which means you’re entitled to some of their profits. The company will regularly pay you money for being an owner, known as a dividend payment. Your shares can also become more valuable over time when a company performs well, because other investors will want to buy your shares.

Stocks are a high-return asset, with the stock market earning on average about 10 percent a year. In comparison, if you keep your money in the bank, you’ll likely earn under 1 percent in interest. However, stocks are a risky asset. There’s no guarantee that your stocks will make money, and it’s possible to lose money if their value falls. Every investor loses money from time to time, so you need to invest with the mindset that you’ll accept occasional losses in exchange for a better long-term return.

How Do You Buy Stocks?

You can only buy stocks from a broker, a person or company who specializes in buying and selling stocks. There are a few different types of brokers out there. The first are the big, full-service companies that provide a variety of services including stock advice, but they’ll likely be expensive. Next, there are cheaper discount online brokers available. They offer fewer frills than full-service companies and typically no investment advice. Finally, you might instead choose to work with a financial adviser who also acts as a broker. This person can help you with your entire financial plan—but they’ll also charge the highest fees.

How Do You Decide Which Stocks to Buy?

As a new investor, you may want to start by buying mutual funds instead of individual stocks. Mutual funds pool the money of many small investors to create a large portfolio of different stocks. The fund is then managed by a professional investor. Every mutual fund comes with specific goals, so you’ll want to find one that matches your preferences. For example, if you like the tech industry, you could find a mutual fund that only invests in technology stocks.

If you want to buy individual stocks instead, look for companies whose profits and future growth are on track. Financial websites are constantly posting updates and opinion pieces on different stocks, so you can find plenty of information about them online. You’ll also benefit from focusing on industries you understand. If you come from a medical background, for instance, you’d likely do well investing in pharmaceutical stocks.

How Do You Find Money to Invest?

The sooner you start saving and the more you save, the faster you’ll reach your investment goals. That means constantly looking for new ways to save money. If you pay off your car, put the monthly car payment toward your stocks. If you’re able to move to a state with a lower income tax rate, the hundreds you’ll save on taxes each year will give you a great investment head start. Every dollar you save is one more dollar earning in the stock market.

The stock market is one of the greatest creators of wealth in the country. Be sure to keep this advice in mind so you can start investing in the stock market successfully and build a new financial future.