There’s been a renewed interest in investing in the stock market this past year, especially among younger generations. For those looking to maximize their money, the ease and availability of many stock trading apps, such as Robinhood and others, have fueled a huge curiosity for investing. Here is some important advice and questions for consideration when you are interested in starting to invest.
1 Determine your goals
Why do you want to start investing? Is it to help you save and plan for the future? If so, that’s an excellent goal. There are some questions you should ask yourself:
- How much can I afford to invest? The amount you start with isn’t as important as investing steadily over time to build your portfolio and your savings.
- Am I looking to invest for the short or long term? For instance, if you are saving for a house, you will need the money faster than if you are investing for retirement.
- Am I looking to be an active investor or a passive investor? Active investing means you want to take the time to research investments yourself and maintain your portfolio. You will need to have the time and knowledge to do this successfully. Once you analyze and invest in stocks, you will need to watch them carefully. If you want to take a more passive, or hands-off approach, you will want to invest in something that someone else is monitoring, such as a mutual fund.
2 Determine your “risk comfort level”
Any investment involves some level of risk. It’s important to remember when investing in stocks that you may lose some and possibly all of your money. Stocks, unlike deposit accounts at an NCUA-insured credit union, are not federally insured. If you’re comfortable with taking the risk, you may see a greater return on your investment in the stock market. Investing without considering your risk tolerance can be a dangerous financial move. Keep in mind that some stock market volatility is normal, and you have to be able to deal with that.
3 Learn the different types of investment products
Stocks are an investment in a company’s future success. When you invest in a company’s stock, you own shares that represent a small fraction of ownership in that company. In simple terms; when the company profits and the stock goes up, you profit along with them. The primary reason for investing in stocks is for a return on investment. The return can come in one of two ways. The stock price might go up, which gives you a return on your investment. The other way is investing in a stock that pays dividends. Although not all stocks pay dividends, some do. Dividends are regular payments made to shareholders out of a company’s revenue.
A bond is a loan from an investor to a borrower, such as a company or a municipality. The borrower uses the money to fund operations, while the investor receives interest on the investment. Bonds are typically less volatile than stocks, making them a safer bet when you don’t want to take as much risk. They are an option for someone looking to be a more active investor. Although you can choose exactly what you want to invest in, the process can be time-consuming.
Index Funds/Mutual Funds/ETFs
Index funds are just what they sound like. They are investment funds that follow a benchmark index, such as the S&P 500 or Nasdaq 100. When you put your cash in an index mutual fund or ETF (exchange-traded fund), it is invested in all of the companies that make up a particular index. This gives you greater diversity than purchasing individual stocks. You are at less risk, because of this diversification. An index fund is a better option for those who seek to be passive investors. These types of funds can enable you to invest regularly without much thought.
4 Understand the differences in stock investing apps
Robinhood and other new apps have appealed to a new generation of investors by helping to make stock purchases and trades more accessible to all, through a commission-free mobile-first platform. While newcomers such as Robinhood may appeal to some, seasoned investment apps such as E*Trade and Ameritrade also feature a $0 trade fee and have a long history of serving investors. The particular app or site you use to help you invest might be determined by your wants and needs. For example, is it all about cost, ease, or learning? There are many investing apps and sites available with various pros and cons. Here are just a few popular apps and their various benefits:
- Ameritrade – Ameritrade is a good option for both beginner investors and active traders. Investors benefit from commission-free stock, ETF, and options trades, as well as free research and a large investment selection. The highly capable trading platform is also available in a mobile version.
- Robinhood – A free stock trading app that’s popular among youth, it features commission-free trades on stocks, options, and ETFs. Robinhood also has no account minimum and offers fractional shares and access to cryptocurrencies. You cannot invest in retirement accounts, mutual funds, or bonds through Robinhood.
- E*Trade – The first player in the online investing platform market, E*Trade offers commission-free stock and ETF trades. The wide range of investment choices includes more than 4,300 no-transaction-fee mutual funds. They also offer access to educational webinars on diversification, trading, and more.
- Fidelity – Fidelity is best for long-term investing. The range of accounts available through Fidelity should meet the need of just about any investor. There are also educational tools available to help with research and trade, as well as retirement and long-term planning goals. Fidelity is a good option for both beginning investors, as well as active stock traders.
The best investment strategy for investing in stocks
While investing might seem intimidating if you’re just beginning, it can help you accomplish many of your financial goals. It’s important to remember that the best investment strategy for you is the one that best meets your budget and your overall goals while keeping in line with your risk comfort level. As with so many other things, it all starts with careful research.
Want to learn more about investing? Read our blog post on “6 Investing Tips for 2022.”