How to invest in stocks, even if you’re starting from scratch

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If you’re looking for a proven way to grow your money, investing your cash in stocks is one of the best ways to do that. Of course, investing isn’t something that should be taken lightly — there are good and bad moves to be made, and there’s a lot to know about the stock market before hitting the "buy" button.

The first thing to know is there are a couple of different ways to invest in the stock market, namely retirement accounts and taxable brokerage accounts that consist of individual stocks or funds. While 401(k)s and IRAs are indeed invested, we’re talking here about investing money in the stock market through investments of your choice through brokerage accounts. 

Now that you have the basics, learn how to invest in stocks with our step-by-step guide for total beginners.

How to invest in stocks

1. Consider when you’ll need your money

Investing is a great way to grow your money over the long-term, but if you think you’ll need your money quickly — say, in a couple of months or even a year or two — you might get better returns (with less potential fees) by investing through a high-yield savings account or even a certificate of deposit (CD) account.

 

2. Think about how much, and how often, you want to invest

Certain investment funds require minimum deposits, and there can be fees associated with stock transactions. So it’s a good idea to consider ahead of time how much money you can afford to invest, and how often you’ll be doing so. Markets Insider is a great starting point for your research and can help you decide where to put your money.

3. Pick an approach

Before you start investing, you should consider how much personal involvement you’d like to have in managing your portfolio. Luckily, there is an approach for every investor, whether you want to be more directly involved or have someone else do most of the legwork for you.

Choose your own individual stocks and funds or work with a financial adviser to build your portfolio

To start investing, you’ll need to work with a brokerage firm. These firms buy and sell stocks on your behalf, often charging commissions and fees on the trades that are made within your account. A financial adviser can help direct you in setting up a portfolio, or you can create one on your own.

Before deciding to invest on your own, do some research to ensure you make educated decisions. For example, it’s important to understand the different types of funds you can invest in.

Mutual funds are a professionally managed investment fund that pools money from multiple investors, and index funds, which are a type of mutual fund, follow a particular index (such as the S&P 500) and can provide broad exposure to the market at lower costs to the investor. Billionaire Warren Buffett recommends investing in low-fee index funds for the best return on investment.

When it comes to investing, most experts also advise against buying individual stocks — like Apple or Amazon, for example — in order to keep your portfolio as diverse as possible and to steadily gain wealth over time.

Let a robo-adviser do the choosing for you

If you want to invest but don’t want to worry about having to pick and monitor a portfolio, consider using a robo-adviser, an online-only brokerage service that tends to be a lower-cost way of using (mostly virtual) advisers to pick and manage your portfolio for you. Some of the big robo-adviser options are Wealthfront, Ellevest, and Betterment, which all trade in funds (rather than individual stocks).

Need help with your investment strategy? SmartAsset’s free tool can help you find a licensed professional near you »

4. Open an account

To start investing in individual stocks or funds, you’ll need to open an account at a brokerage firm. Do some online research and ask around for recommendations on financial institutions that other people use and like. Remember, if you’ll be investing on your own, you’ll want a reputable firm with a website that’s intuitive to use and accounts that are low on fees.

Vanguard, TD Ameritrade, Charles Schwab, or Fidelity all offer online accounts that can be opened in just a few steps.

This process typically involves filling out a new account application form with some personal information, like your full name, address and additional contact information, citizenship and income information, as well as identifying beneficiaries or adding additional account owners and setting up initial funding.

If you’ve decided to go the robo-adviser route with a company like Wealthfront, Ellevest, or Betterment, you’ll set up your brokerage account with that company. That process typically involves answering a few questions online regarding your specific financial goals. After that, the robo-adviser will suggest a pre-set portfolio that matches your goals.

If you already have a 401(k) with a brokerage firm, you might want to keep all of your financial dealings with that financial institution, but you don’t have to.

5. Put your money in the market

With your budget in mind, your research done, and your account opened, it’s time to start investing. With most online brokerage accounts this is pretty easy — just log in, head to the investment page, search for the particular stock or fund you want, and click buy. A customer service representative should be able to walk you through the process the first time to show you all the ins and outs of your particular account.

With a robo-adviser, you’ll just check in on your account periodically to ensure it’s progressing to match your goals and make adjustments as needed.

You can also set your investment account to automatically pull a set amount of money from your checking account or paycheck each month so you don’t have to remember to make those transactions yourself.

Ready to invest and want to work with a robo-adviser? Consider opening an account with Wealthfront, Ellevest, or Betterment today »

6. Set a plan and stick to it

Try to avoid checking your portfolio every day (or even weekly or monthly), since it’s very common for the market to fluctuate each day. Instead, make a goal to check in only a few times a year and to only make adjustments once a year to account for any changes necessary to balance your overall portfolio.

It’s worth noting that Ramit Sethi, author of the New York Times bestseller "I Will Teach You To Be Rich," says that an average 8% return on investment is ideal for most people. You don’t need to make big, risky investments to build long-term wealth, he says, and "average" performance will provide the most stable path to financial growth. He prefers to invest in index funds and target date funds.

The bottom line? Just start investing — don’t let the process scare you. Once you have a solid emergency fund built up and no high-cost debt to take care of, open an account with a robo-adviser or invest in some low-cost index funds, then put a bit of money into your brokerage account from every paycheck. In the long run, that’s one of the best (and easiest) ways to make your money grow.

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Source: Business Insider – feedback@businessinsider.com (Cheryl Lock)

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