Investing for Beginners: Where to Start

I am sure that you have heard about investing lately. The stock market is still doing well in 2020, it has been rising steadily since the recession of 2008. Maybe you want to be sure you are on the bandwagon and get in on some of the money to be made. Maybe you are more apprehensive about investing, but you want to be smart and set aside money for the future.

Regardless of your motivations, I have laid out a very simple guide to get started investing for beginners.

Make sure you are ready to start investing first

You have established an emergency savings.

You have eliminated high-interest debt.

You are already investing in your 401K or IRA.

You understand your financial goals for the money you wish to invest.

Decide Your Financial Goals

When you know what your intent is with the money that you wish to invest and see grow, it will be easier to determine the level of risk you can take with it.

Investing is only wise for money that will be used 5 years or longer from now. If your “longer” is after age 60 for retirement, you need to put that money in an IRA. If you wish to use it between 5 years from now and when you turn 60 than a non-IRA investment account could be right for you.

Open a Brokerage Account

The easiest way to get started is to begin a brokerage account with any bank or investment firm.

Vanguard and Fidelity are known as the lowest cost investment options in the nation.

Other good options are Charles Schwab and TD Ameritrade, who by the way are looking to merge as Schwab buys out Ameritrade.

Explore the websites, see which resonates with you and which you would like to do business with. Then give them a call.

A phone call is helpful in this case because discussing with a person what your goals are for the account is valuable. This will help them know what type of funds to put your investment money in. It will most likely be a mixture of stocks and bonds. The stocks are the risky asset and the bonds stabilize it. The longer your time horizon or the more risk you want to take, the more stocks will be in your mixture.

You can start with an opening balance, some as little as $100, then add to it each month just as you would grow your emergency fund. Each time you add your monthly amount they will buy the stocks and bonds in the ratio that was predetermined for you.

Remember, do not be too excited or alarmed if you see gains or losses from day to day or week to week in the amount in the account. What you are hoping for with this type of account is an average growth over time. You want to see gains over 5% if possible, but over a span of 5, 8 or 10 years. There will be ups and downs during this time.

Investing is not a get rich quick scheme, but it will help you to see some interest gained on your money as you save for something in the future. You should see much more interest gained than if it is sitting in a savings account today.

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Don’t Start Investing by Buying Individual Company Stocks

I don’t suggest starting with buying individual company stocks unless you have done an extensive amount of research and know why you are buying the stocks. Don’t put a few hundred or thousand in a company just because they are a popular company like Tesla. Just as an example Tesla is a stock that costs over $500 when I looked at it today. Unless you have a significant amount of money to invest in Tesla, you would only get a couple of stocks. Then all your investment money is truly “in one basket”, you would be fully reliant on this one company for your gains and your losses.

I would only do this if you understand the value of the stock, how much is a good price to buy at and then plan to keep it for the long term.

If you want to learn more about trading individual stocks, start reading books or online to gain more insight. If you want to learn with hands-on, then download a free to trade app like Robinhood and give yourself $100-200 of “fun money” to try and see what happens with it. Be sure this is money that you wouldn’t mind losing if the stocks you purchase go down because they will vary and they will vary up or down from day to day.

I believe that investing is a long term plan for your money. Buying and selling often are more like day trading and you would need to research that elsewhere as I do not know enough to help you with that.