{"id":33,"date":"2021-12-22T12:31:46","date_gmt":"2021-12-22T12:31:46","guid":{"rendered":"https:\/\/wealthiereveryday.com\/?p=33"},"modified":"2022-03-21T11:52:07","modified_gmt":"2022-03-21T11:52:07","slug":"how-to-start-investing","status":"publish","type":"post","link":"https:\/\/wealthiereveryday.com\/how-to-start-investing\/","title":{"rendered":"How to Start Investing in Stock Market"},"content":{"rendered":"\n

How to start investing in to stock market?<\/strong> Basically, all you need to start investing is some money and an internet connection. If you are completely new to investing, index funds may be the safest option for you instead of individual stocks. <\/strong>In this post, I will briefly walk you through the world of investing in index funds and stocks.<\/p>\n\n\n\n

You can also invest in cryptocurrencies, real estate, and many others, but I suggest you start with low-cost index funds. Index funds are well diversified and have had steady returns over the past. One of the most popular options is S&P 500 index fund.<\/p>\n\n\n\n

\"How
S&P index monthly chart 1975 – 2021 (Tradingview.com)<\/figcaption><\/figure>\n\n\n\n

The chart shows only the price of the stocks and doesn\u2019t include dividends paid during that time. With all the dividends reinvested into the index, the average return for the year would be over 12%. However, inflation will take its share of this return. The inflation-adjusted return for the period would be still over 8% per year on average (which is still very good).<\/em><\/p>\n\n\n\n

What is investing and how it works<\/strong><\/h2>\n\n\n\n

Let\u2019s get to the basics of investing. Whenever you buy a stock or index fund, you are buying a share of a company, or with index funds, fractions of shares of a lot of companies. Let\u2019s take a single stock, for example. You will buy the shares from a former shareholder and in this way become part owner of the company. Because you own a part of the company which shares you bought, part of the profit the company makes belongs to you. <\/strong><\/p>\n\n\n\n

Companies will pay the profit to shareholders as dividends or reinvest it into the business. This helps the company grow and therefore the value of your shares will rise, since the company will be overall more valuable. Of course, there is a downside, if the company does not perform well, the stock price will fall, and therefore the price of your shares will probably fall as well. You risk your money to get the returns. That\u2019s the principle of investing.<\/p>\n\n\n\n

The price of what people are willing to pay in the stock market will not always be the same as the real value of the stock. This is basically how the stock market is supposed to work. The same applies to index funds, but you just own a smaller portion of a lot more companies and this diversifies the risk.<\/p>\n\n\n\n

In S&P 500\u2019s case, you will own shares of 500 different companies. Usually, funds will reinvest any dividends they get from the companies. If the funds reinvest or pay dividends to you, this is told in the brochure of the fund. You should always pay close attention to what the fund brochure is telling you.<\/strong><\/p>\n\n\n\n

How to invest in index funds?<\/strong><\/h2>\n\n\n\n

To get started with index funds, first you should have a broker that offers index funds. The selection of brokers varies in different countries, and chances are there are several in your country. <\/p>\n\n\n\n

Compare the funds they offer. You should look for funds that have no deposit fee and no withdrawal fee. <\/p>\n\n\n\n

Yearly fees for the fund should be less than 0,5%. Of course, the closer the fees are to 0, the better. In a short period of time, a 1% fee might not look that bad, but in the longer term there is a big difference between a 0% fee and a 1% fee. The difference is even greater with 0% and 2%. Here are some examples:<\/p>\n\n\n\n

1000 dollars in 25-year period with 8% yearly return would be:<\/p>\n\n\n\n