How to Start Investing in the Stock Market

Investing in the stock market is an intimidating thing. Many millennials are told to start investing while they are young – this ensures your investments have time to grow over your lifetime. However, just getting started in investing can be extremely difficult.

There are multiple ways to start investing, such as opening/starting an IRA (individual retirement account), or joining your companies 401k/403b plan, but for the most freedom you will want to open a brokerage account. A brokerage account allows an investor to deposit funds with the brokerage and place investment orders with those funds.

Lots of companies that you probably have seen commercials for allow people to invest in the stock market: Scottrade, E-trade, Fidelity, and Vanguard. These are all brokerage firms. Some brokerages have account minimums, and it’s common for them to charge between six to ten dollars per transaction. This means every time you purchase stocks (whether 5 or 500 stocks) you get charged that flat fee, it’s also the same for every time you sell stock(s). Personally, I use Robinhood as my broker, it has no minimum and no fees. The downside to Robinhood is that you can’t do super advanced stock trades (futures, options) but if you are just starting out investing, it should not matter anyway.

amazon-stockAfter opening a brokerage account the fun begins. You get to start picking out the stocks or funds to start investing in. You can run google search to find out more about any company. I use yahoo finance to find out more details about specific stocks. Here are you can quickly see stock prices over time, what analysts are saying, who owns the majority of shares, financial statements, and so on. There are many different ways to find a stock to own, but on a high level I have listed a few key rules to look for when amazon-stock2
investing:

  1. Don’t put all your eggs in one basket. Diversify your investments, there is always a risk that your investment could lose money.
  2. Have a good proportion of your portfolio as index funds. Index funds get you broad diversification for cheap. An index fund is constructed to match a set market index (S&P 500, Down Jones, Nasdaq, etc). Here are links to the index funds to the most popular indexes – SPY (S&P 500), DIA (Dow Jones), QQQ (Nasdaq)
  3. Where do you see the company in general in 5 years? If you think the company will be better off in the future than it is now then it could be a stock to consider. Amazon, Netflix, Facebook, Google, etc. have all grown significantly in the past 5 years.The stock prices reflect this. There are companies like these that will grow in five years from today.
  4.  Buy stocks in industries you understand. It would be very frustrating to lose money in something and not be able to explain why. For example, I never invest in anything mining related because I do not understand the industry.

Before putting your real money in the stock market, I would recommended using a stock market simulator. Here you use fake money in the stock market that gets updated in real time. It’s a good way to test the waters before using your own money. In college I used Investopedia to practice. Here is a link to the investopedia calculator: http://www.investopedia.com/simulator/

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