How To Invest In Stocks A Step-By-Step Beginners Guide
Investing in stocks is a great way to grow wealth, I have been doing it for years. Luckily now, it is easier and cheaper to get started.
This Beginners Guide to Investing in Stocks will walk you through, step by step, in an easy to understand and follow format, how to invest in stocks, even if you have little money to start with.
How Many People Own Stocks?
Have you ever wondered just how many people own stocks and invest in the stock market? These kind of statistics are recorded by agencies and institutes, such as the Federal Reserve, who conduct a Survey of Consumer Finances (SCF) every 3 years to gather information to help the Government and public understand the financial condition of families in the United States.
According to the most recent survey results, from 2016, stock ownership has increased from the previous 2013 results, with 51.9 percent of families owning stocks, up from 48.8 percent.
For families in the top 10% income group, the rate of ownership also increased over the previous survey, with stock ownership for this group rising to 93.6 percent in 2016.
As of 2019, the top 10% income group of American families owned an average of $969,000 in stocks. The next 40 percent owned $132,000 on average. For the bottom half of families, it was just under $54,000.
As you can see, many people have substantial amounts of money invested in stocks, as stock ownership is a proven wealth builder.
To give you some perspective, if you had invested $1,000 in amazon in January 2009 and did nothing else other than hold those shares for the following 10 years, as of today, that same $1,000 investment would be worth just under $31,000, which is certainly a great return on the initial investment.
Now, it is important to realise that this is not indicative of stock investing and not all investments will increase to this degree, but it does show you what can happen with a relatively small initial investment.
What Is A Stock And What Is Stock Investing?
A stock, also called a ‘share’, is simply a tiny piece of ownership in a business. Publicly listed companies allow anyone to buy or sell ownership of the company’s shares of their business on stock exchanges.
Owning stock in a company essentially means you are a part owner of the company. While this sounds good, it doesn’t give you any operational power, but you can attend share holder meetings and vote on members of the Board of Directors.
Stock investing is buying shares in publicly listed companies; this can be a single company, or multiple companies.
How Do You Invest In Stocks?
There are several ways you can invest in stocks, but the main choice you need to make is whether to go the DIY route, or get advice from someone else.
- DIY stock Investing – You have the knowledge and enjoy learning and monitoring the stock market and choose the stocks and funds you want to invest in yourself.
- Stock advisor – You want to invest in stocks, but don’t have the knowledge, or time to devote to learning and taking an active hands-on role in your investing; if this sounds like you, then a robo-advisor, a service that offers low-cost investment management could be a good fit.
If you are unsure of which one to choose, you can start with a robo-advisor and then take more control, as time allows.
How To Open An Investing Account
To invest in stocks, you need an investment account, whether you have chosen to go the DIY route, or are using a robo-advisor. This will be seperate to any 401(k) you may have.
The DIY Option – A Brokerage Account
A brokerage account is an investment account that enables you to buy stocks, bonds, mutual funds and other assets with money you deposit into your account. An online brokerage account generally provides the quickest and least expensive way to buy stocks, funds and a variety of other investments.
You have probably heard the term ‘stock broker’ and have some knowledge of what a stock broker does; a brokerage account is your avenue for getting access to use their services. With a broker, you can open an individual retirement account, also known as an IRA, or create a taxable brokerage account if you’re already have enough retirement savings.
Stock Advisor Option – Open A Robo-Advisor Account
A robo-advisor is a great option for those that want a set and forget way of investing. There are many robo-advisors on the market, with the best providing a simple way for you to set your investment goals and then build an investment portfolio designed to achieve them for you.
Most robo-advisors charge management fees between 0.25% to 0.50% of your assets under management, which is generally far cheaper than a human investment managed will charge you.
How Much Money Do You Need To Start Investing In Stocks?
While you can literally invest your small change with some Robo-advisor Investing Apps, these will generally not buy you a stock as such, unless you have a lot of small change…. 😉
For buying multiples of entire stocks, the amount of money you need to buy them depends on the price of the stock and the number you want to buy. Share prices can range from just a few dollars to a few thousand dollars, so what you choose to buy and how much you have to spend will determine how much money you need.
Saying that, you can easily start with as little as $500 – $1,000; my earlier Amazon example giving an example of how that can grow over time.
There are many strategies you can use for stock investing from very basic strategies, to very complex. As an example, a relatively simple strategy is investing in index funds; Warren Buffett himself famously said a low-cost S&P 500 index fund is the best investment most Americans can make.
My own personal choice is to use funds for seperate retirement investments and to buy individual shares for growth and income generation,, through high yield dividend stocks, as well as trading stocks for returns.
If you want to invest in individual stocks, then I suggest you do a lot of research and reading to understand the intricacies of stocks and how the market works. If you plan to stick primarily with investment funds, building a simple portfolio of broad-based, low-cost options should be your plan.
Common Questions About Investing In Stocks
How Do I Invest In Stocks With Little Money?
The majority of investments require a minimum amount to buy a share package. This can be generally between $500 – $1,000.
Another problem,, if you don’t have much to invest is that this will make it harder for you to diversify your investments. Diversification basically means not putting all your eggs in one basket (not putting all your investment dollars into one company), instead spreading it around (diversifying) into several companies. The less money you have, the harder it is to spread.
An alternative for getting started, if you want to begin investing in stocks and getting more confidence with the process but don’t how much money to spare, you could choose to start with an investment app. You can find out more here and see which investment app is right for you.
Are Stocks A Good Investment For Beginners?
Stocks are a great investment for everyone and beginners are no different, as everyone, even the most experienced stock investor was a beginner at some point.
The thing to remember though, is that like all investments, stock investing should be thought of as long term (think 5 years or longer). Unless you are trading stocks on a regular basis,, looking for a risky, but quick return, you really need to think long term with investing.
Stocks go up and down, so as long as you have invested in enough diversified quality stocks, even if your initial investment drops, over the long term, you will be far better off.
What Are The Best Stocks To Buy For Beginners?
This is the Million Dollar question and one of the most asked by beginning investors. With over 630,000 publicly traded companies worldwide (according to Investopedia) it can be overwhelming knowing where to start.
It takes a lot of research, education, and time to develop enough knowledge to manage a sound diversified portfolio of individual stocks. If you have the time and capacity to gain the necessary knowledge, great, go for it, otherwise a good place to start is a stock mutual fund, including index funds and ETF’s.
By purchasing these instead of individual stocks, you can buy a big chunk of the stock market in one transaction.
Index funds and ETFs track a benchmark, for example, the S&P 500 or the Dow Jones Industrial Average, which means your fund’s performance will mirror that benchmark’s performance. If you’re invested in an S&P 500 index fund and the S&P 500 is up, your investment will go up as well.
That means you won’t make extravagant gains above the market average, but it also means, short of a major crash, you won’t make extravagant losses wither. Investors who trade individual stocks instead of funds often underperform the market over the long term.
Can I Buy One Share Of Stock?
Technically you can buy one share of stock in a company, but it isn’t advisable to do so. While there is no minimum order limit on the purchase of a publicly traded company’s stock, it’s advisable to buy blocks of stock with a minimum value of $500 to $1,000. This is because no matter what online or offline service an investor uses to purchase stock, there are brokerage fees and commissions on the trade, both in and out.
Can Investing In Stocks Make Me Rich?
The short answer is yes, the longer answer is, it will take time. Investing in stocks is not the same as trading stocks. Investing is a longer term gain proposition, but the payoffs are substantial if done properly.
You need to think of investing as a slow, steady and consistent way to build wealth. With a 7% average yearly gain, your initial investment will double in ten years, even quicker, if you use techniques such as dividend reinvestment, rather than spending any dividends you may accumulate. This provides a compounding aspect to your share portfolio, on top of the annualised growth.
Is Stock Trading For Beginners?
Buying stocks for investment and stock trading, are similar, but different in their strategy.
Stock traders attempt to time the market in search of opportunities to buy low and sell high; this means you could be making multiple trades each day, even as an amateur, trying to keep ahead of the curve.
Stock trading is certainly not for the faint hearted; sure, if you know your stuff and have the time and dedication, you can make a lot of of money, however, for the average stock investor and especially for the beginner, is to invest and hold on to a diversified investment, like a mutual fund, over the long term.
This strategy is proven to provide long term gains and wealth accumulation, without the risks, costs and hassles of stock trading.
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