Increase your long-term financial stability by growing your wealth through investments. Investing in the stock market means you are actively purchasing shares in a public company. As a part-owner of that company, you see positive gains on your investment when it does well because the value of your shares increases. However, there is always a chance that you could lose money if the company performs poorly, so it’s important that you only invest an amount you can afford and take advantage of all the tools at your disposal to lower your risk of experiencing a loss. The good news is that you can get started right away with just a few dollars and increase your investment as your confidence grows.
Begin By Setting Your Investment Goals
What do you hope to achieve in the short and long term? The strategy you follow may look different depending on each of these. Are you trying to save more money to fund a big purchase, or do you want to increase your retirement account? Buying and selling stocks frequently requires more knowledge of the companies and know-how in trading, but could lead to faster gains. Investing for the long term generally has the greatest gains because the short-term fluctuations won’t impact your investment as much.
Determine an Affordable Investment Amount
The stock market is unpredictable. It changes day to day and week to week. Even with careful research, there is always the chance you could lose money. It’s also worth noting that unless you plan to day trade, which is tough to succeed at as a beginner, you will need to invest your money and leave it for some time to grow wealth. Only invest what you can actually afford to lose. You can always increase your investment over time.
Choose Your Investing Style
Consider your risk tolerance to find your investing style. Active trading has bigger risks. The goal is to generate more money in the short term by utilizing various techniques to outperform the market. While you may achieve a big win, you have a higher risk of losing money.
The buy-and-hold strategy is a classic for a reason. You buy and hold onto a stock for years to let it grow. Remember to expect occasional drops and resist selling your shares during times of heavy market fluctuation to see the long-term benefits.
Open and Fund an Investment Account
Investing has never before been so easy and convenient. Now you can select an online broker like Charles Schwab, Fidelity, or Robinhood and access your account anytime and anywhere by downloading an app. Some brokerages let you fund your account with as little as $10 to begin investing. Most online accounts are taxable, but you can find tax-deferred accounts like a 401(k) or a traditional IRA, or a tax-free account like a Roth IRA that invests after-tax dollars. Each has its strengths, and it’s important to compare the options to choose one that is a good fit for your needs and investment style.
You can also choose to invest with the help of a financial advisor or robo-advisor. Working with an advisor requires you to pay a fee, and the advisor invests your money on your behalf.
Do Your Research and Pick Stocks
Most investments fall under one of two types:
- Individual Stocks: Individual stocks allow you to purchase shares from a specific company. You must pay close attention to the stocks and expect them to have ups and downs. Research the company to understand its past performance, future possibilities and risks before investing.
- Mutual Funds: Mutual funds allow you to invest in small shares of many different stocks with a single transaction. The risk is typically lower since your investment is spread out between several companies. Mutual funds could have a minimum investment of $1,000 or more. One common type of mutual fund is an index fund like the S&P 500, which lets you purchase small pieces of some of the biggest US companies in a single transaction. You automatically get a diversified investment, plus, it’s a simple strategy and can have great returns, especially when you hold onto the stock long term.
Individual stocks are often a good start for beginners when investing, as you get a feel for how each stock performs. They carry greater risk but have the potential for greater returns. Mutual funds are a good choice if you are looking for a more diversified and less risky approach to investing. You can also diversify your portfolio with international stocks along with domestic stocks.
Monitor Your Stocks
Long-term investing is typically the most profitable and involves less risk, but some investors prefer more active trading that involves a higher risk, but the potential for a big payoff. Active trading typically also yields faster results. It’s up to you to weigh the pros and cons of each strategy. How you invest depends on your goals, available funds, and comfort level when taking risks. No matter your preferred investment strategies, monitor your account regularly to check on your stocks, see how they are performing, and determine if your current investments are still the best choices to help you meet your goals.
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