|MAKE YOUR MONEY WORK FOR YOU: A NEWCOMERS GUIDE TO STOCKS
1. DECIDE HOW YOU WANT TO INVEST
There are three primary ways to start to invest in stocks. Once you have a preference in mind, you're ready to shop for an account. The options are:
1. Choose stocks and funds on your own.
2. Get an expert to manage the process for you.
3. Start investing in your employer's 401(k).
2. CHOOSE AN INVESTING ACCOUNT
THE DIY OPTION: OPENING A BROKERAGE ACCOUNT
An online brokerage account likely offers your quickest and least expensive path to buying stocks, funds and a variety of other investments.
THE PASSIVE OPTION - OPENING A ROBO-ADVISOR ACCOUNT
A robo-advisor offers the benefits of stock investing, but doesn't require its owner to do the legwork required to pick individual investments. Management fees are generally a fraction of the cost of what a human investor would charge.
One important note: Both brokers and robo-advisors allow you to open an account with very little money.
3. LEARN THE DIFFERENCE BETWEEN INVESTING IN STOCKS AND FUNDS
If you're going the DIY route, keep reading! For many people, stock market investing means choosing among the following two investment types:
STOCK MUTUAL FUNDS OR EXCHANGE-TRADED FUNDS
Mutual funds let you purchase small pieces of many different stocks in a single transaction. When you invest in a fund, you also own small pieces of each of these companies.
Note that stock mutual funds are also sometimes called mutual funds.
Learn more about how mutual funds work.
If there's a specific company that you're interested in, you can buy a single share or a few shares as a way to dip your toe into the stock-trading waters.
The upside? A wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.
4. SET A BUDGET FOR YOUR STOCK INVESTMENT
New investors often have two questions in this step of the process. Answer them and you can move to the next step:
HOW MUCH MONEY DO I NEED TO START INVESTING IN STOCKS?
The amount of money you need to buy an individual stock depends on how expensive the shares are. (Share prices can range from just a few dollars to a few thousand dollars.) If you want mutual funds and have a small budget, an exchange-traded fund (ETF) may be your best bet. Mutual funds often have minimums of $1,000 or more, but ETFs trade like a stock, which means you purchase them for a share price — in some cases, less than $100).
HOW MUCH MONEY SHOULD I INVEST IN STOCKS?
If you’re investing through funds you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon. Individual stocks are another story. A general rule of thumb is to keep these to a small portion of your investment portfolio.
5. FOCUS ON THE LONG-TERM
The best thing to do after you start investing in stocks or mutual funds may be the hardest: Don't look at them.
6. MANAGE YOUR STOCK PORTFOLIO
Of course, there will be times when you'll need to check in on your stocks or other investments. If you follow the steps above to buy mutual funds and individual stocks over time, you’ll want to revisit your portfolio a few times a year to make sure it’s still in line with your investment goals.
Investing in stocks can feel overwhelming to those who are new to the game. However, it mainly involves determining your preferred investment strategy, selecting an appropriate account, and deciding on the ideal amount of funds to allocate to stocks.
For more, visit nerdwallet.com