Become a Pro at Investing in 5 Simple Steps!
First of all, welcome to our not-so-little world of investing! Investing in stock markets is one of the most reliable ways to make your money earn for you in the long run. With the increasing ease of access to investing, many of us want to now step into the investing market.
However, after deciding that you want to take a step in the dimension of stock market investments, the common question that follows is – “how to invest in the stock market?”
5 Steps to Becoming a Pro at Investing!
Simply follow the below steps and you can call yourself a proud investor soon after:
Step #1: Determine Your Approach
As an investor, you can decide to invest in individual stocks. However, this is suitable for only those people that have the time and desire to deeply research and evaluate the stocks on a regular basis.
Additionally, you can also consider investing in index funds that track a stock index, for example, the S&P 500. You can also consider actively managed funds as an option, these funds aim at beating an index.
On the contrary, there are a lot of people who do not find the idea of mathematical calculations and quarterly earnings reports very appealing. The option of taking a more passive approach is ideal in such cases.
However, when it comes down to comparing the two – actively managed mutual funds and passive index funds, it is important to know that in most cases index funds have lower costs and are virtually guaranteed to meet the long-term performance of the underlying index.
Step #2: Decide Your Investment Budget
The first and foremost rule to remember is the money that you should not put in the stock market. The stock market is not the ideal place to invest the funds that you may require in the next few years, at least in the next five years.
The stock market is expected to rise in the long run, however, the degree of uncertainty for the stock prices is very high in the short term.
Moving on to the money that you will not be requiring in at least the next five years, which is the ‘investable’ money. This is a concept called asset allocation. There are a few factors to consider in this concept – your age being the key factor, along with your investment objectives and risk tolerance as an investor.
Step #3: Open an Investment Account
In order to invest in the stock market, you will be required to hold a brokerage account. Opening a brokerage account is an easy process that can be done in a few minutes. Your brokerage account can be funded easily using wire transfer, check payment, or EFT transfer.
The process of opening a brokerage account is hassle-free, however, few things should be considered before locking in on one option:
Type of Account: First, determine the kind of brokerage account you require. For many people who are starting out in stocks, this means choosing between the standard brokerage account and the individual retirement account or IRA. The main things to keep in mind while deciding is the reason why you are investing in stocks and the ease at which you want to access your money.
If you want to access your money easily or you are just investing for an occasion, or you want to invest more than the annual limit of IRA, then it is better to opt for a standard brokerage account. You can buy stocks, ETFs and mutual funds in both types of accounts.
However, if you are investing to build a retirement plan, an individual retirement account (IRA) is a good option. The only downside of investing in an IRA is that it is often difficult to withdraw your money until you get older.
Comparison of the Costs and Features: It is important to compare across the fee charged by the different brokers. Many of the online brokers have removed the trading commission to be at par. However, the main differences still exist. For instance, some brokers provide you with education tools, access to research for investment, and other features. These are often proved to useful for newer investors.
The functionality and user-friendliness of the broker’s platform for trading are important factors to consider.
Step #4: Choose the Stocks
There are several things that one should go over while selecting and analyzing stocks. It is impossible to list out all the considerations, however, the few important things to consider are:
- Make it a priority to diversify your portfolio.
- Only consider investing in businesses you understand.
- You should avoid stocks that are very volatile at the beginning of your investment journey.
- It is good to learn the concepts and metrics used while evaluating stocks.
It is important to know that diversification is important for a well-managed portfolio. Diversifying your portfolio means spreading your investments across different stocks. The
Step #5: Continue Investing
The most guaranteed way to make money in the stock market is to invest in shares of great businesses at a reasonable price and then to hold onto them for as long as the businesses remain great. This involves some volatility during the journey, but over the course of time, it often serves great results.
The Bottom Line
Now that you have got the hang of these 5 simple steps, what are you waiting for? Go start investing!