Investing in stocks is a good way to build long-term wealth. It can also be treated as a hobby and used to defend yourself against inflation.
How to start investing in to stock market?
Basically, all you need to start investing in stocks is an internet connection, some device to execute the trades with, like a computer or smartphone, and some money you are willing to risk.
Next thing you do is find a broker, that you will use to buy the stocks you want. Brokers available in different countries will vary. I will return to brokers later in this post.
After you have found a broker that will fill all your needs, it’s time to find something to buy. I imagine, you have some stock to buy already in mind if you are reading this. There are benefits to buying different stocks, and “not putting all your eggs in one basket” but you can start with just one or a few stocks to test the waters.
How to choose right stockbroker?
When choosing a broker, there are a few things you should consider.
- Trustworthiness of the broker. Is the broker well known and legit? Since you are putting your money at risk anyway, you don’t want any extra risk with a shady broker, right? Read reviews and compare brokers available in your country. Imagine, that you will hold your money and savings in their service for the next 20 years. Would you sleep peacefully knowing they have your hard-earned funds?
- Fees the broker charges are a big thing as well. There are mainly two types of fees: flat fee, for example, 5 dollars for every trade, or 0,1 dollars per stock bought etc. Another option is spreads. For example, if the price of a stock is 500 dollars, you can buy it for 500,5 dollars “without any fees” and sell it for 495,5 dollars. In this case, the spread is 1 dollar. Depending on the amount you are going to invest, you can choose which one is better for you. For smaller amounts, spreads can be a cheaper option. There can also be other costs, like deposit or withdrawal fee, or just some monthly fee for keeping your account open. There can also be some hidden fees, so read the small prints carefully.
- Customer service. Does the broker offer customer service in your language? Also, do they have chat, email and/or phone customer service. Depending on what you want, this can help you choose.
Sometimes, the easiest first broker could be your local bank. However, the fees at your local bank might be higher than brokers that offer spreads.
How much money do I need to invest in stocks?
You can start with just a few dollars, if you choose a cheap broker. With spreads, if you want to buy 500 different stocks, you can do that with very little fees. Imagine the same with a 5-dollar flat fee, you would pay 2500 dollars on just trading fees.
This of course, depends on the amount you are buying. Let’s take the example we had again about spreads. You can buy 500 dollar stock for 500,5 dollars. Here the fee is 0,1%. On the other hand, if you want to buy 100 000 dollars worth of that stock, the amount you pay in fees would be 100 dollars. If you had a flat fee, you would pay just 5 dollars per trade. When comparing brokers, do the calculations well, and you can save yourself a lot of money.
Should you start investing to stocks?
Investing is a good way to create wealth for the future – when done right. For beginners, investing in individual stocks may not be the best option. Index funds and ETFs which own a lot of different stocks, are well diversified and can be safer options for beginners.
If you still want to buy individual stocks, it’s okay, but do your research well. Remember that the price of a stock can go down as well, and only invest in what you don’t need for a decade or so.
My personal strategy is to invest 80% of the money I put into the stock market into index funds and 20% into individual stocks. Not because I think I can beat the market (I hope I would) but to keep things interesting. Its much more fun to see how my own picks are doing daily than seeing the slow movements of bigger indexes. Still, I have that 80% growing steadily in index funds.
Some things to keep in mind
- If the stock has fallen a lot, it doesn’t mean it’s cheap. There is probably a reason for that.
- Risks of investing directly in stocks are higher compared to well-diversified index funds.
- Diversifying, which means buying different stocks will also reduce risk.
- Keep the stock market as one aspect of your investment portfolio. There are other options as well.
- You can think of investing as a hobby. It’s fun to follow your picks and the market, but don’t go over your head. If a 5% fall in the market will affect your sleep, maybe start a bit smaller.
- Time diversification is a good risk-reduction tool as well. This means buying a small amount, for example, every month, instead of dumping all your savings into stocks at once.
- Compound interest calculators are fun to play with. One that I use is here: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator (not sponsored)
Other investing-related posts can be found here.
Hopefully this was helpful to you, have a nice day.
This is not investment or financial advice. I’m just sharing my own thoughts and I hope they can be useful to you in your research. Remember that you can lose some or all of the money you invest in the stock market and there is no guarantee that the returns what the stock market has given in the past, will continue.