A Beginners Guide to Stock Investing in 5 easy steps
Thanks to technology, everyone now has access to investing. In this article, we'll walk through 5 easy steps to start investing today.
1. Preparing to Invest
Start Investing Today
Before investing, review your personal finances. New investors are more successful when they have a grasp of their personal finances. Managing your personal finances is easy and will help you start growing your wealth.
Even if your personal finances need help, you should still start investing today. Thanks to fractional shares, beginner investors can start investing with $25. Routine is very important in investing. Starting that routine now even if it's only $25 a month. You can invest more as you build confidence.
Setup a Brokerage Account
A brokerage account is where you conduct stock trades. Here are brokerages used by many retail investors:
FInding the right brokerage will keep your investment costs down.
2. Conducting Research
Figure out what you're investing for
When you start investing, set a goal for what you want to achieve. The key objectives will fall into:
- Rapid growth - You want to grow your assets quickly. The trade-off to reaching this goal is that the investments needed for rapid growth are more volatile.
- Balanced Growth - You want to grow your assets quickly, but you don't want high volatility. This is a "goldilocks" strategy. Not too hot or too cold. The trade-off is less growth and less safety versus other strategies you could use.
- Income generation - This strategy focuses on growing your income instead of your assets. You obtain income generation by investing in dividend stocks and bonds.
- Wealth Preservation - You want the minimum amount of risk to beat inflation. This way your wealth holds its purchasing power. This strategy focuses on suppressing volatility, hedging risk, and insuring against market down-turns.
To begin, read our guide on assessing stocks. This guide walks through how to analyze a stock with simple examples.
Next, research the stocks. Researching stocks is critical to building a quality portfolio. Some great resources are:
Check if a stock has a high or low P/E ratio, a dividend, and a stock buy back program. These indicators are a starting point when assessing a stock.
Invest in What you Know
Revenue is king. So which companies are making revenue? The companies you're buying from. The products you like get made by companies you can invest in. Here a few example companies you've like heard of:
McDonalds is the most recognized fast food chain in the world. Did you know McDonalds pays a 2.24% dividend? That means if you invest $100 in McDonalds, McDonalds will send you money once a year to buy a shake. If you invest $10,000, they pay you a large enough dividend to buy 100 shakes a year. That's easily enough to buy a shake and fries every weekend!
Tesla vehicles are in high demand. The company has made electric vehicles hip and cool. But if you're still saving up for your first Tesla, speed up your savings by investing in Tesla stock. Tesla is a volatile stock, but if you invest long term you can ignore the drama and reap the growth.
General Mills (GIS)
Are you eating your cheerios? It may help improve the health of your heart. These cereals are a staple in American life and produced by General Mills. A consumer staple, check out General Mills for something consistent in your portfolio
3. Make Trades
Diversify your Portfolio
Invest in at least 10 different stocks when you begin. To diversify your portfolio, use fractional shares. This allows you to have 10 different stocks even if you started with only $100. Diversification helps to manage risk in your portfolio. You do not want all your eggs in one basket.
Write Trade Instructions
In your brokerage account, go to the trade link. Enter in the stock symbol you want to buy. Change the number of shares until the total purchase is one tenth of your total investment. Set the trade as a market order.
Warning: if your stock is a small-cap or micro-cap stock, do not set a market order. These stocks have low volumes that must be managed with limit orders. Market orders are less risky if the stock is a mid-cap or blue chip stock.
4. Develop a Cadence
Review Portfolio Quarterly
One critical mistake made by beginner investors is to keep looking at their portfolios daily. Once you make a long-term investment, you should be in it for at least a year! Hence why the research step is very important. Review your portfolio quarterly. If you're using StockBossUp, be sure to assess your drafted team at this time as well.
5. Take Profit
One indication a stock should be sold is when you stop using a product they have. If you just don't like your vehicle, then you should sell any stock you have in that vehicle's company. If you switch to a competitor's product, consider buying shares in their company.
Stocks hold wealth, so do not feel pressured to sell stocks even after they significantly increase in value. Holding a company for years is also a good idea.
The hardest part of investing is selling your stock. There is no perfect time to sell a stock. We suggest selling at least one year after purchasing a stock to lower your tax bill on any gains you made.
Though not always possible, try to avoid selling stock for monthly costs. Again, not always possible. But treat yourself if you're investments are successful. Buy dinner out using your stock's dividend. Have your car stock buy your next car. The point of investing is to have the financial security to live a healthy and happy life.
Part of a Series for Beginner Investors