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If you’re here, you most likely have heard about investing before and understand it provides a great way to grow and save your money. Investing requires research and upkeep to make sure your investments reflect your personal financial goals. This leads to the question: how do you begin investing in the first place? Oftentimes, people will work with a financial advisor to create a plan that reflects their financial aspirations.
We’re going to start with some basics for stock buying, and then break out into detail on how you can begin your investing journey. Stocks are shares in ownership of a company you’re allowed to buy. This means that no matter how big or small a share is, you may become a partial owner of the company if you pay the price of a share. When the company grows, so does the stock’s value. And if the company declines in value, so does your stock’s value.
Before you begin your investing journey, it’s important to take a look at your current financial situation and the goals you hope to achieve by investing. Since investing in stocks requires you to spend money, you must make sure you have room in your budget. You should take care of any debts or ongoing liabilities you may have before putting money aside to invest. You may also want to take time establishing your tolerance for risk, on top of learning how the stock market works as a whole.
Individual stocks and the market as a whole can be affected by a number of different factors, such as political and world events, company performance, supply and demand, and many more. Different companies and stocks provide more security than others, establishing your risk tolerance and goal of investing can direct you towards the stocks you want to invest in. Some investors opt for safer stocks to avoid possible losses, some opt for high risk, high growth companies, and some like a mix of both. Finding your ideal investment plan can take time,so it is important to be patient.
Once you have decided what you hope to achieve out of stock investing and how you’re going to go about it, you can begin by opening a brokerage account to hold your investments. This can be done on your own by shopping around for a broker with which to open your account. There are many options available, and each broker offers different benefits, finding the broker that aligns with your investing goals is important.
Opening a brokerage account is simple, but you’ll need to provide personal information and some proof of identification. Then, you will have to fund your account to buy stocks, which can be done electronically or with a check. Some brokerages have limitations on the amount you can deposit, keep an eye out for these restrictions.
Doing your research can prevent you from being surprised out of money. Once you have successfully deposited funds and your account is verified, you may purchase the stocks of your choice.
There are numerous stocks you can choose from, so it helps to research before buying any. Doing your research so you have an understanding of the company you’re investing your money in can limit your downside risk. Furthermore, you will have to decide how many shares you want to buy once you find a company you would like to invest in. Although it is difficult to time the market, keeping track of the stocks you’re interested in can be beneficial. Buying a stock when it has reached an all-time high can result in instant loss of money.
If you want to opt for a lower risk investing method, you have the option to invest in index funds. An index fund is a type of mutual fund or exchange-traded fund (ETF) with an assortment of stocks constructed to track the components of a financial market index. These funds provide broad market exposure, low operating expenses, and low portfolio turnover. Lastly, it’s important to note that all stocks don’t function similarly, there are a range of stocks investors can choose from. These stocks include blue-chip stocks, small-cap stocks, large-cap stocks, ETF’s, preferred stocks and many more. Understanding which stocks are best for you is a decision you must make on your own.
Now that you know where to buy stocks, it’s time to buy some for yourself. There are a few ways you can go about purchasing stocks. One way would be to submit a market order. This simply means that you want to buy a share of stock at the best available current market price. This type of order is immediate, regardless of the share’s price. Food for thought when making this type of order is that the market constantly fluctuates, and so will the price you pay or sell at. The next type of order is a limit order, this method is most preferred.
This type of order allows you to set the price point in which you are willing to pay for a certain company’s stock. For example, Apple currently trades at $126, but you’re only willing to pay $115. You submit a limit order to purchase (or sell) at $115 and only when the stock reaches $115 or lower, will the order execute. This is when having a professional or broker can be helpful. Professionals can offer insight and efficiency when making these decisions. Plus, you won’t have to worry about making these orders yourself, which makes investing less stressful for you.
Buying stock is only part of your journey; if you want to align your stock with your financial goals, you should aim to build a strong portfolio. Investing for your future is a key financial choice each individual must make. Building wealth that will sustain you takes time. Preparing accordingly and investing for the long-term can be a challenging task, but a very rewarding one. Starting early can make all the difference, let’s take a look at two scenarios.
The Standard & Poor’s 500, also known as the S&P 500, is an index fund that posts a long-term return average of 9.64%. Using this return, if you invested $10 per day, starting at the age of 20 years old, you would have just over $1,600,000, by the time you were 60 years old. Now say you began investing at 30 years old, using the same numbers, you would have $615,000, by the time you were 60 years old. The decision to begin investing 10 years later would have cost you nearly $1,000,000.
Every time you invest, you take some sort of risk. Determining how much risk you’re willing to take can guide what type of investments you wish to make. You should have a strong idea of what you’re investing for and how long it will take. If you want to grow wealth quickly, you may opt for an aggressive investment strategy (this could result in heavy downside as well). You should also keep in mind how long you want to hold on to each investment, this is called a time horizon. A time horizon allows you to put your financial goals on a timeline, giving them a greater purpose to you.
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