Learn How to Invest in Stock Market for Beginners
If you are looking to learn how to invest in stocks, there is much for you to learn but don’t let that stop you. Because of the economy they have grown up in, most millennials are significantly more likely than prior generations to be risk adverse. Coupled with the fact that wading into the world of investing is intimidating, it is no wonder why so many young adults are choosing to bypass the stock market altogether. According to a recent study from UBS, 52% of millennials are holding their savings in cold hard cash and only placing 28% of it in stocks.
However, if you are interested in reaping the benefits that the stock market has to offer, here’s how to get started but you must first ask yourself a few questions and do your own research…
How much of a risk taker are you?
The first step to successful investing is to determine how adverse to risk you are. Do you prefer investments that offer a lower, but more reliable return? Or are you willing to place money in riskier investments on the chance that it offers a high return? If a single stock dropped 15% in one day, what would your response be? Would you sell in a panic? Or would you hang on to it and wait for it to rebound?
These are important questions to answer because your answers will determine what type of equity investments are best-suited for you. If you prefer to minimize the risk associated with investing, then index funds or mutual funds would be ideal. Each type is well-diversified, and because they contain numerous different types of stocks, it reduces risk. Investing in these vehicles also eliminates the need to do individual stock research. If you would like to learn more about mutual funds, I would recommend the book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. It is very educational and it tells you what to look for when shopping for mutual funds.
How much time are you willing to invest in investing?
Should you invest in stocks, funds, or a mixture of the two? The answer will be determined by how much time you’re willing to devote to investing. If you chose to invest in the aforementioned index funds or mutual funds, the job of handpicking stocks is left up to the fund manager.
The most time consuming option is individual stock investing. You will be required to make determinations regarding a specific stock’s earnings, current management, and future performance. It is up to you to determine which stocks could lead to financial ruin and which ones could be big money makers. Just some of the information you’ll need to know about the company you are considering investing in is what they do, how their money is earned, their future prospects, and much more. Individual stock investing is a craft that will require time to learn.
With any type of investment, where it is real estate or investing in stocks, it is important to educate yourself. At a minimum, you should know what a stock is, what a bond is, what a mutual fund is, what an ETF is, and what an investment allocation is. As a general rule of thumb, if something is too difficult for you to understand, then you probably shouldn’t invest in it.
Invest some time into deciding how you would like for your portfolio to look and how you’d like to accomplish that while remaining within your limits for risk tolerance. When you’re ready to invest, take some time to find a broker that you’re comfortable with – whether he or she is local or online. Don’t hesitate to call and talk with them. This is your money, and you should know what it is doing and why.
So these are a few tips to help you get started but what else are you doing to educate yourself to begin investing in stocks? If your a hands on learner. Open a fake account on www.investopedia.com and start practicing with fake money. This is a great way to learn. Share with the Young and Finance community in the comments below on what your next step is!