I get lots of questions on where to even begin with the stock market. In response to this, I want to provide some fundamentals for beginners wanting to start investing.
First up, risk and the fundamentals of the market.
The rule of thumb with the stock market is to buy low, sell high. This means, you want to sell the stock for a higher amount than what you bought it for – this is what generates profit in your pocket.
The first thing I like to tell people about market investments is that anyone can do it. You don’t need to already be rich or have loads of extra money lying around. I like to look at a brokerage account as my savings account – only I get much higher interest on it than I would in a traditional bank account. There are a variety of ways you can set up your investment portfolio that range from very low risk to much higher risk. Risk determines your chances of losing your earnings or investment.
Ideally, we would all want a low risk-high return type of portfolio, but that simply does not exist on its own.
It’s important to note that this talk about risk should not allude to the idea that you are gambling. Investing can definitely be a smart financial decision (if done correctly), as it is based on actual established companies and informed decision-making. The market will always recover and grow in the long term, so keep in mind that risk is largely a factor of how long you are willing to wait for your return.
In my opinion, the best way to mitagate risk is to diversify your portfolio. This means buying different companies, in different sectors, with no relationship to each other. That way, when one company (or sector) is at a loss, you could still see an overall positive return because your other stocks are doing well.
The amount of risk you are willing to take on is based on your personal preference. However, I would advise considering a few factors to determine your desired style.
What can I buy?
How do I buy?
This part is speaking specifically for Americans (as Europeans do not have the same ease of market access as US citizens do).
You will need to set up a brokerage account with the firm of your choice. Choose a company with little to no commissions and low brokerage fees – because the last thing you want is someone taking a chunk out of your money. I recommend Fidelity. It’s easy and free to set up an account, you can link your bank details, and get trading immediately.
I strongly discourage using an investment advisor to do your trading for you. They take out a large amount for commissions and fees, for something that you can easily do online on your own. With a little bit of research and knowledge, you will be well on your way to investing like a pro on your own, for yourself! So save your money, and open a Fidelity account instead.
In my next investment posts, I will get more into actual market trading, what to look for, and how to see the opportunities out there. Have a good one, you guys!