Investing is one of the best ways to see solid returns on your money. So how to start investing and investing for beginners will depends on your financial situation, investment goal and when you need to reach it.
Once you want to know how to start investing, open either a taxable brokerage account or a tax-advantaged account like an IRA, depending on your goal. Pick an investment strategy that makes sense for your saving goals, how much you’re investing and your time horizon. Understand your investment choices such as stocks, bonds and funds to build a portfolio for your goals.
What are Stocks and how to start investing in stocks?
A stock is a share of ownership in a single company. Stocks are also known as equities. Stocks are purchased for a share price, which can range from the single digits to a couple thousand dollars, depending on the company. As a beginner investing in stocks can be intimidating. Hence when you want to know how to invest in stocks few points needs to be taken care of, which we shall delve on.
As a newbie to the world of investing, you’ll have a lot of questions, not the least of which is: How much money do I need, how do I get started and what are the best investment strategies for beginners and how to start investing in stocks?
Investing in stocks for beginners
Here are five steps to start investing in stocks for beginners in 2023:
Start early
Investing when you’re young is one of the best ways to see solid returns on your money. That’s thanks to compound earnings, which means your investment returns start earning their own return. Compounding allows your account balance to snowball over time.
How much to invest?
How much you should invest depends on your financial situation, investment goal and when you need to reach it.
One common investment goal is retirement. As a general rule of thumb, you want to aim to invest a total of 10% to 15% of your income each year for retirement.
Start with opening an account
Brokerage accounts are also a good option for people who have maxed out their IRA retirement contributions and want to continue investing.
Pick an investment strategy
Your investment strategy depends on your saving goals, how much money you need to reach them and your time horizon.
Understand your investment options
Once you decide how to invest, you’ll need to choose what to invest in. Every investment carries risk, and it’s important to understand each instrument, how much risk it carries and whether that risk is aligned with your goals. The most popular investments for those just starting out include:
Other key things to know about investing as a beginner
The process for investing does not need to be complex. A best practice is to limit investment decisions rooted in speculation, panic, or fear as these feelings can often lead to significant losses and higher risk. The important thing for new investors is to take things slow and strive for consistency.
When in doubt, refer to your investing goals as your North Star to keep your emotions and your portfolio on track and remember that investing is a process that happens over time and not overnight.
Other investment options for beginners
For beginners, other than investing in stocks, there are other investment options too. Lets look into them in brief:
Bonds
A bond is essentially a loan to a company or government entity, which agrees to pay you back in a certain number of years. Bonds generally are less risky than stocks because you know exactly when you’ll be paid back and how much you’ll earn. But bonds earn lower long-term returns, so they should make up only a small part of a long-term investment portfolio.
Mutual funds
A mutual fund is a mix of investments packaged together. Mutual funds allow investors to skip the work of picking individual stocks and bonds, and instead purchase a diverse collection in one transaction. They are generally less risky than individual stocks.
Exchange-traded funds
Like a mutual fund, an ETF holds many individual investments bundled together. The difference is that ETFs trade throughout the day like a stock, and are purchased for a share price.
An ETF’s share price is often lower than the minimum investment requirement of a mutual fund, which makes ETFs a good option for new investors or small budgets. Index funds can also be ETFs.
