Investing in stocks may seem overwhelming to a beginner, but with a bit of background knowledge it is pretty straightforward to get started. Buying stocks means you are buying shares of ownership in a public company that you anticipate will grow and perform well over time. There is no guarantee that a company will be continuously successful, but there are certain methods to evaluate and predict the growth and performance of a company.
Buying stocks is intended to be an investment made over time rather than a quick return, particularly because the market will experience ups and downs. Having a diversified investment portfolio and staying invested in your stocks as the market rises and falls are both standard guidelines for smart investing, especially for beginners.
Let’s take a look at some of the basics you should know as you prepare to invest in the stock market.
How should you invest in the stock market?
There are a few options for buying stocks, dependent on how involved you’d like to be in the process. Both scenarios allow you to open an account without a large amount of funds.
- Hands-on: Open an online brokerage account. This is one of the quickest and easiest ways to buy stocks and provides more flexibility in doing your own research on the companies you’d like to invest in. You should evaluate brokers based on trading commissions, account fees, and investment selection. Simply provide proof of identification and how you wish to fund the account.
- Hands-off: Open a robo-advisor account. These services allow you to own a stock account but don’t require you to select individual investments. Instead, they provide investment management that builds a portfolio for you based on your desired investing goals. You can evaluate these accounts by their management fees, which is typically about 0.25% of your account balance. Be sure to read the terms carefully to understand the requirements of holding the account.
What types of investments should you make?
If you open an online brokerage account, you have a couple of investment types to choose from that are most common.
- Mutual funds — Stock mutual funds allow you to purchase small pieces of many stocks in a single transaction. Stocks or bonds listed on a particular index make up these funds. The S&P 500, for example, replicates an index by purchasing stock of all the companies in it — so when you invest in the S&P 500, you also own small parts of those companies.
- Individual stocks — You can also buy single or multiple shares of one specific company. You’ll want to do detailed research into a company before investing and have a firm understanding why you chose it. You may also want to consider if the company is offering growth stocks (rapid gains in profit or revenue), value stocks (priced at a discount and anticipate price gains over time), or dividend stocks (pay some of their earnings to shareholders in the form of dividends).
Both investment types are a great way to dip your toes into investing, however, individual stocks can make it slightly more difficult to diversify your portfolio over time whereas mutual funds are diversified by nature. On the flip side, individual stocks are more likely to see some rapid inclines as compared to mutual funds and a smart pick could pay off well.
How do I manage my portfolio?
As mentioned, stock market investing is a long game. Once you decide which funds or individual stocks to invest in, you won’t need to keep a constant watch over how the market fluctuates up and down (because it will often). You should, however, review your portfolio throughout the year to ensure it is still meeting your investment goals.
If you’re looking for counsel on buying stocks or beginning your investing journey and how to align with your long-term financial goals, speak to a professional. We have expert financial advisors at Republic Bank who can help point you in the right direction — call us at 800-526-9127 to get started.