There’s a reason why 55% of adults in the United States invested in stocks last year. Stocks are a fantastic way for the average person to passively or actively increase their wealth.
Unfortunately, stocks by their nature can be a bit of an insular community. This can make it difficult for the average beginner to confidently invest their money. After all, you don’t want to waste any of your hard-earned cash.
That’s why we made this stocks guide that breaks down how to invest your money into five easy. So, if you’re ready to get into stocks, then let’s get started!
1. Decide On the Right Investing Approach For Your
First things first: you need to decide how active you want to be in managing your stock portfolio. You can be as hands-on or as passive as you want — it all depends on the type of person you are.
More analytical and math-inclined individuals might want to know the ins and outs of everything that they’re investing in. Other people, who are less interested in the details or don’t have hours a day to devote to research, might want to choose a more passive method.
In this section, we’ll be going over three popular investing approaches that beginners often choose: individual stocks, index funds, and automated trading.
Individual stocks are ideal for people who have the time and patients to go through things like company quarterly earnings reports. They should also be able to perform moderately difficult mathematical equations.
If you have the time and will to perform this type of research for a few hours every day, then by all means go with individual stocks. However, keep in mind that there’s nothing wrong with taking the passive approach.
Indeed, if you aren’t sure if individual stock investing is for you, then you should probably consider a different option. Otherwise, you could lose money.
In addition to investing in individual stocks, you can also invest in index funds. These are passive investment options that are investments that track strong investments like those found on the S&P 500.
Index funds are ideal for beginners because they are low-cost and come with a virtual guarantee in terms of their long-term performance. This can lead to some substantial wealth if you leave them alone for long enough.
Putting your investment approach into the hands of a computer might sound scary. But, there’s a reason why it has become increasingly popular over the years.
A computer can take into account a variety of factors like your age, risk level, and overall investment goal. It then makes all the trading decisions for you by calculating advanced algorithms and data input.
Going live with automated futures trading is ideal because it both maximizes your investments and optimizes your tax efficiency.
2. Choose the Amount of Money You Will Invest
Many newcomers are unsure of how much money they should invest in stocks. Generally, a good rule of thumb is to invest money that you’re positive you won’t need in the next five years.
So, things like emergency funds, tuition payments, vacation funds, and down payment money should be left alone. Why keep these funds out of stocks? Because while stocks generally rise they can drop significantly during the short term.
As such, you don’t want to place money in your stocks that you might need at a moment’s notice. However, anything left you can begin allocating toward your stock options.
3. Open Up Your Investment Account
To buy stock options you will need a specialized type of brokerage account. This type of account is offered by third-party companies that act as a go-between between you and your stock options.
There are two popular brokerage accounts for newcomers: standard investment accounts and individual retirement accounts (IRA). The main difference between these two options is why you’re investing in these accounts.
In the investment funds that you plan on using shortly, then go with a standard investment account. However, if you’re investing funds that you want as a retirement nest egg, then go with an IRA.
4. Select Your Stocks
Now that you have an account, it’s time to select and buy your stocks. A good rule of thumb here is to diversify your portfolio as much as possible. Don’t put all your eggs into one basket that could potentially fail.
However, there are other tips that you should follow as a beginner. First, avoid investing in businesses that you don’t understand. You should also never invest in penny stocks.
Finally, avoid any highly volatile stocks until you have more experience dealing with the basics.
5. Continue Investing In Your Stocks
The true secret to making good money at stocks is to be patient and continue investing with your earnings. Purchase stocks that come at a reasonable price, then wait until the business is doing extremely well.
Then, sell them and reinvest the money into more stocks. You’re bound to experience some volatility along the way. After all, the stock market is prone to ups and downs.
However, as long as your patient with your investments, then you’re almost guaranteed to see a good ROI in your favor.
Want More Articles Like This Stocks Guide? Keep Exploring
We hope this stock guide helped you learn that investing your money doesn’t need to be complicated. As you can see, there are a variety of options for beginners to invest their money in a way that’s smart and safe.
Whether you want a hands-off method or complete control, there’s a method for you. So, find out the best approach for you and start investing!
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