How Do I Invest in the Stock Market as a Beginner?
From using tech to help you get started on the right foot to getting a feel of market movements without too much risk, here are six answers to the question, “What are ways to invest in the stock market as a beginner?”
- Start With a Robo-Advisor Account
- Consider ETFs
- Download an Investment App
- Take Your Pick of Funds or Stocks
- Use the Dollar Cost-Averaging Method
- Invest in Index Tracker Funds
Start With a Robo-Advisor Account
Investing in the stock market as a beginner can seem daunting. Opening a robo-advisor account is a good first step for those just starting out.
Robo-advisors employ algorithms to recommend, manage, and monitor an individual’s portfolio at an affordable cost. After answering some basic questions, they can build a portfolio aimed at meeting personal financial goals and make adjustments over time to adjust to changing markets.
Opening an account with a robo-advisor can be an easy first foray into the world of investing in stocks, helping to learn the basics before moving on to other methods of investment—all without breaking the bank.
Consider ETFs in the Beginning
ETFs, or exchange-traded funds, are something like mutual funds but a bit more active. Whereas with mutual funds you typically just invest in a basket of stocks, and typically need a fairly hefty starting balance, ETFs trade throughout the day just like regular stocks and do not come with the same minimum investment requirements as mutual funds.
This makes them rather attractive for beginners as you don’t need to invest thousands right off the bat—you can buy one share plus any fees or commissions on the purchase if you so choose, or even less if you’re working with a flexible broker that allows for fractional share investing. In my experience, ETFs are excellent assets for beginners as you can hold them in various tax-advantaged accounts that most would be familiar with, such as 401ks and IRAs.
Download an Investment App
There are tons of investment apps out there right now that will help novice investors start their stock market journey. For example, Acorn is one of the best beginner investment tools in the App Store. It’s specifically designed for investors who want to start off small while teaching them all the ropes about the stock market.
Acorn has a lot of features. In terms of security, it uses modern encryption technology to safeguard your data and money. The app also provides up-to-date market recommendations, based on their advisors’ research, depending on the goals you set when you create your account.
Take Your Pick of Funds or Stocks
Navigating the stock market can seem like a daunting task to a beginner. There are seemingly a million different terms, acronyms, and prices to wrap your head around. If you’re a beginner investor, I recommend first distinguishing if you’d like to invest in stocks or funds, as these are two separate entities.
Stock investing doesn’t have to be complicated. In fact, many people think investing in the stock market means choosing one of these two options. They characterize individual stocks as shares of one specific company. It’s important to note that these stocks will rise and fall. You can lessen your risk of loss by investing in stocks that inherently diversify your portfolio.
Mutual funds are characterized as pieces of a variety of original stocks purchased in a single transaction. Pairing mutual funds will diversify your portfolio and increase your likelihood of a payout. Always do your research to determine which option is best for you.
Use the Dollar Cost-Averaging Method
Many financial advisers recommend the dollar-cost averaging method for people who want to invest in the stock market for the first time. The reason is that it is a fairly safe, sustainable, and easy way of getting significant gains in the long term.
In this method, I recommend an investor invest a fixed amount in an index fund of their choice, such as the S&P 500 or the Vanguard Index Fund. The interval between each deposit could be monthly, weekly, or bi-weekly, depending on their preference. The amount that they invest should stay the same for long stretches, but they can also increase it.
The idea behind it is that, by regularly investing equal amounts, the investor buys more shares when prices are low and fewer shares when prices are high, offsetting the cost of his investments. This way, an investor can safely ride the performance of the market, which historically tends to be positive when assessed in the long term.
Invest in Index Tracker Funds
When learning how to invest, index tracker funds are the ideal set of training wheels. Index tracker funds are mutual funds that simply track a major stock index, i.e., the S&P 500, FTSE 100, or the Dow Jones, etc. This approach is known as “passive investing,” as it doesn’t require any active management or investment strategy.
By starting with tracker funds, you can get a feel for market movements without too much risk. When beginners invest in single stocks, they panic easily, buying high and selling low. With tracker funds, however, you just passively follow the markets, quickly acclimatizing to sudden fluctuations in stock prices.
Once you feel comfortable with tracker funds, then you could move towards more active investment strategies, i.e., actively managed funds, ETFs, and blue-chip stocks. Alternatively, you could stick with the passive approach in perpetuity, adopting a low-stress, set-and-forget strategy; the choice is yours.
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