Investing in stocks is not just a game for the wealthy. In fact, it’s a game that will make you wealthy – regardless of your current financial situation or previous investing experience. It’s not hard to get started and doesn’t take a lot of money. You can even start investing with as little as just $5 or as much as $5,000 or more. The good news is that you’re here, and you’re on the right track. Here’s how to invest in stocks in five steps and within less than 10 minutes.
The Basics To Investing In Stocks
When you purchase a share of stock, you are purchasing a piece of ownership in that company. As that company grows, so does the value of your shares of stock. For example, if you purchase five shares of ABC Company for $100 each (total of $500) and its stock value increases by 10%, so does the value of your stocks. We know that 10% of $500 equals $50, meaning your original $500 is now worth $550.
Over the long term, stocks generally increase in value (but can also decrease in value). The total US stock market grows at an average of 8% – 10% per year. You can build tremendous wealth by purchasing stocks or stock funds and holding onto them for a long time. Here’s how to get started.
How To Start Investing In Stocks In 5 Steps
Don’t let the idea of investing in stocks be intimidating because, in reality, it’s not complicated at all. All you have to do is define your objective, choose your investment approach, open and fund an investment account, set up automatic transfers (this is important), then build your portfolio based on your goals and investment approach. Here’s how it works.
Step 1: Define Your Objective
Understanding your objective with the money you are investing will determine how you invest that money. Investment objectives can be anything from saving for retirement, building wealth, saving for education, saving for a down payment on a home, or saving for a major purchase. Regardless of your objective, it’s important to understand that you should not invest your money unless you plan to invest it for at least 12 months or more. We will circle back to your answer to this step in step 5.
Step 2: Choose Your Investment Approach
What I mean by choosing your approach to investing is deciding how much time you will spend building your portfolio and where you will put your money. Some of you reading this may want to put in no more than 10 minutes a week simply. Others want to be more involved and do more research about what companies they invest in. There are three approaches to how you can invest:
- Invest in individual stocks: This approach takes more time due to the requirement to research your investments before investing. The benefit here is the potential for much higher returns. This is where Stock Pickz can help – we do the research for you so you can confidently make quicker investment decisions.
- Invest in stock funds: You can invest in a basket of companies through exchange-traded funds (ETFs) or mutual funds. ETFs are the way to go in my opinion, and you can select ETFs with many different objectives or choose an ETF that matches the S&P 500 index. This approach is much more passive and takes little time to manage. All you have to do is check in on your portfolio occasionally and perhaps manually make new purchases as you save more money.
- Invest with a robo-advisor: A robo-advisor is a service offered by many investment companies. Their algorithm selects a balanced portfolio based on your responses to simple questions. This is the most passive approach to investing and requires little to no time.
The ultimate question should be how much time you plan to spend managing your portfolio. Your answer to this question will point you in the right direction as to which of the three approaches above you decide to go with. Your answer to this step will also be revisited in step 5.
Step 3: Open And Fund Your Account
If you haven’t already, you need to open up an investment account. For those who might feel confused about what an investment account is – it’s similar to opening up a bank account. The difference is that an investment bank will allow you to make investment purchases with the money in your account. The process is the same for the most part.
I recommend opening up an investment account with one of the following:
- Betterment (robo-advisor)
- Acorns (robo-advisor)
- TD Ameritrade
If I were to pick my top choice, I’d go with Fidelity – that’s what I personally use. If you are looking for a robo-advisor, I’d open an account with Acorns.
Step 4: Set Up Automatic Transfers
This step is crucial. Perhaps the best thing you can do when investing in stocks is to set up an automatic transfer from day one. This doesn’t have to be an automatic investment, just an automatic transfer, so more money is saved regularly. These automatic transfers should become a big part of your budget and should be treated as important as paying another bill.
Once you get in the habit of knowing that a transfer is coming out, it will become second nature, and your savings will grow like crazy! I like to set up automatic weekly transfers on Mondays because I feel like I’m building my savings regularly and more often rather than monthly. You be the judge, though, on how often you schedule your transfers.
Step 5: Build Your Portfolio
This step will be dependent on your answers to steps one and two. You will begin building your investment portfolio in accordance with your investment objective/goal and your chosen investment approach. For example, if you plan to save money to build wealth and spend more time managing your portfolio, you may choose to invest in individual stocks and hold onto them for a long time.
Suppose you are planning for retirement and won’t need your invested money for 20+ years and prefer to spend little time managing your portfolio. In that case, you may wish to invest in a basic S&P 500 index ETF consisting of 500 of the largest companies in the US. Each time you invest your money, it’s being spread across many companies, and the total US stock market grows at approximately 8% – 10% per year on average.
Stock Pickz Will Do The Research For You
When you join Stock Pickz, you get access to our list of heavily researched stocks that we think have amazing growth potential. With each stock pick, you’ll get a rundown of what the company does, the current financial status of the company, and the biggest reasons we think you should add them to your portfolio. Furthermore, you’ll get access to our free investing course and additional premium investing content. Join Stock Pickz today!