I think we can all agree that gone are the days of expecting to build significant wealth by hiding your “money in a mattress,” which nowadays, can mean literally hiding money in your home or stashing it in a low interest yielding savings account.
It all pretty much yields the same returns…nada. If you really want to get serious about achieving your financial goals, whether nurturing your nest egg or funding your dream business idea, investing is the name of the game.
What is investing? By sheer textbook definition, investing is the act of expending money with the expectation of achieving a profit. So in other words, you give something and then expect to eventually get back what you initially put in, with a little something extra.
So now that you have a basic understanding of the principles of investing, you should know that there are many ways for you to invest your money. For now, we’ll focus on stock market investing because it’s one of the most popular ways to invest and now it’s so easy to do. When you invest in the stock market, you are purchasing a percentage or share of a company. Essentially, you own a piece of the company and are entitled to get a portion of its profits often in the form of dividends.
Make sense? Great, now let’s get started.
First, do your research.
It’s hard to play the game if you don’t know the rules. If you know nothing about stock market investing start by doing some research so that you understand your options. This is key because the reality is that investing in stock is risky business and if you are looking to invest large sums of money, you need to be informed or work with an expert. Fortunately, there are tons of resources such as books, webinars, blogs, and of course, the experts themselves, stockbrokers that can help you along the way. Below are a few great resources to get you started.
How to Make Money in Stocks: A Winning System in Good Times and Bad – book by William J. O’Neill
Investing Basics: Stocks – TD Ameritrade (video)
Ellevest – A great resource, particularly for women looking to get in the investing game.
Set goals and boundaries for investing.
If you want to build a solid strategy you have to know your goals. This involves reviewing your monthly budget, other financial goals, as well as the current state of your financial portfolio. Is it supporting your goal for early retirement? Starting a business? Growing your nest egg? You also want to ask yourself how much you’re willing to risk.
Remember that investing in the stock market comes with a high probability that you could lose some or all of what you have invested as can be volatile. If you’re in it for the long haul and have no plans to take your money out anytime soon, then the risk may not bother you as much because you’ll have time to recover what you’ve lost. However, if you’re looking for ways to make quick money to accommodate shorter-term goals, you may not want to put all your eggs in this basket. Keep this in mind as you’re setting your investment limits.
Determine how you want to manage the investment process.
Now that you have determined your investment goal and can afford to invest, let’s decide how to manage trading stocks. If you’ve done your research, you’ll see that you can either choose to go through a brokerage service and hire an advisor who can manage this process for you, or you can DIY.
If you choose the latter, you’ll want to spend a lot of time researching companies to invest in. Below are some general rules of thumb when selecting which stocks to purchase.
- Figure out if you want to invest in individual stocks (higher risk) or mutual funds (lower risk).
- If you decide to buy individual stocks, start with investment companies that you actually use and like.
- Review the financial health of the company. Is this a company that is financially sound and can be expected to be around for a long time?
If you choose to hire a brokerage firm to manage most of this process for you, make sure to thoroughly research the firm’s fee structure. Some companies charge transaction fees every time they make a trade for you. For more tips on how to choose stocks to invest in, check out this super helpful article from MarketWatch.
Becoming a stock investor doesn’t have to be overwhelming and it doesn’t require a lot of money. You can move at your own pace and invest at your comfort level. For more great investing tips, be sure to check out Tonya’s Facebook live where she discussed the 3 Things You Need To Do Before You Aggressively Invest. Watch it here.
Contributor: Christina Merriweather