Investing Basics: Want to Start Investing in Stocks, Don’t Know Anything About It?

Want to Start Investing in Stocks, But You Don’t Know Anything About It? Here’s Where You Should Start – guest post from across the Pond from Norma Spencer of Sure Dividend

If you want to grow wealth long-term and in a smart way, there aren’t many better ways to do it than through stock investments. Truly committing to the stock market means that even if the market isn’t in a great state and everything’s pretty volatile — you will have some cheap stocks to buy and reap the benefits later on.

But one of the primary reasons why most people don’t invest in stocks is that it can all seem a bit scary when you’re not familiar with the intricacies of the stock market. Don’t worry, though — the learning curve for long-term investors is flatter than you think. And that’s precisely what you want to be — there’s nothing that pays better than playing the long game. With that in mind, we’ll take a look at some of the basics of starting with stocks.

Decide how to invest

Stock investing is a pretty broad topic, meaning there’s more than one way to approach it. That’s why you should think about how you want to enter the stock market in the very beginning.

For instance, if you want to choose between different stock funds and stocks on your own, we’ll give you some of the very basics. However, this is a pretty hands-on approach, and know that it will involve a lot of learning before it yields results.

On the other hand, you could also find an expert that can do this for you — in that case, getting some Robo-advisor services is the most affordable way to find stock investment management. Most of the bigger brokerage companies tend to offer these services. In this case, you set some specific goals and they make the investments with your money and for you.

Finally, one of the most often encountered ways to start dabbling in stocks is by investing in the 401(k) (‘pension fund’…Ed) of your employer. It’s a good way to learn some of the more tried and true approaches that all new investors should know; like being hands-off, having the long-term prospects of your stock in mind, and making a lot of smaller contributions regularly instead of going for a big splash. 

Choosing the right investment account

Next up, you’ll want to choose your brokerage account — this is the least expensive and fastest way to access the stock market, as well as funds and a lot of other investments. There’s a variety of factors by which you want to evaluate and choose brokers — such as expenses (account fees and trading commissions), the investment selection, and the tools and research for the investor.

Apart from that, there are the Robo advisors. You don’t need to do much of the legwork there as you pick individual investments. These services are there to give you all of the investment management that you need. The company providing the service will make an assessment of all of the goals you have as you go through your onboarding process. After this, they will construct your portfolio based on said goals.

Generally, the fees involved may seem somewhat expensive to you at first, but they’re only actually a small part of the cost that you’d get with a full human investment management. Indeed, Robo-advisors tend to charge a small percentage of your account balance, though that can add up to a hefty sum over time. 

Stocks and Funds

If you’re intent on managing the investment in stocks by yourself, there’s certainly going to be a lot of stuff that you need to learn. However, going the DIY route does mean starting with some basic knowledge — like learning the difference between different types of funds and stocks.

A majority of people that begin investing in funds encounter exchange-traded funds and stock mutual funds. The latter allow you to buy a tiny portion of a variety of stocks over the course of a single transaction.

On the other hand, ETFs are something like a mutual fund but one that tracks an index, such as the Standard and Poor’s famous 500 fund — and they attempt to replicate the index. Once you begin investing in a fund, you will also obtain ownership in very small parts of every company on the list. Also, the famous “diversifying of your portfolio” is something you can achieve by combining a couple of funds.

Conversely, individual stocks are just what they sound like — the stocks of a specific company. There, you can buy a couple of shares, or even a single share. Though, this doesn’t mean that you can’t construct a decent diversified portfolio even with this route — it will take more time, and more investing, but it’s possible.

Of course, the upside here is that mutual fund stocks are inherently diversified. This is excellent for your risk management. A large portion of investors, especially those investing in their retirement, find this to be the clearest possible choice. Still, mutual funds aren’t the stuff you imagine stock investors doing from TV and movies — the value of mutual funds rarely jumps astronomically.

And that’s the most important thing to understand here. A single piece of stock is not likely to make you hugely rich overnight. This happens almost never, and your goal is to accumulate value over a long period of time.