Before you invest in the stock market, there are many things you need to know and do before you waste your money. It includes the amount you want to invest, the types of stocks you want to invest in, and what your strategy/ goals are going to be.
Table of Contents
- Invest As Early As Possible
- Pick The Amount You Want To Invest
- Open An Investment Account
- Choose Your Investment Strategy
- Look At Different Investment
The stock market can be very complicated for people who don’t know much about it. Stocks are very complex, especially if you don’t understand business terminology. If you are new to investing and stock market lingo, don’t worry as you don’t have to learn it all in one sitting.
The stock market is a great place to put your money and save for your future. That could be for a mortgage or it could be for a new car. Whatever your goals are for investing, you need to have a solid strategy in place for you to make your money.
There are many reasons why you may have considered investing in the stock market. One of the reasons is likely because you are struggling with your finances each month. Things like utility bills, groceries, or even your rent for your home have all increased in the last 18 months. There is no doubt that we are living in troubling times which is why we should look at other avenues for income. Investing could be the solution but only if done correctly.
Invest As Early As Possible
The best tip for those who want to invest is that there is no better time than now. As soon as you consider investing, put money into an investment account. It is something that you will thank yourself for in your later years. Investing as a young adult is something your future self will thank you for.
One of the biggest questions at the beginning of people’s stock careers is how much they can start with. Luckily for you, you can start with however much you want. That could be $10, $20 or $50. It all depends on how much money you have spare at the end of the week or month.
Once upon a time, this wasn’t possible as stock accounts would charge transaction fees and set a minimum price to invest. Now, that has all changed. Apps like Trading 212 don’t charge you for depositing and withdrawing money from your account.
Don’t stress too much about how much money you put into your account. As long as you invest the same amount each month, you will gradually increase your investment account.
Compound interest will help your account grow. For example, if you put $200 into your investment account each month, it will come to a total of $2,400. Now, if you do that for ten years and earn a 6% average for the year, it will come to a total of $33,300. The amount of money you invested would come to a total of $24,200. How satisfying is that? That means you get a total of $9,100 extra at the end of your 10-year investment.
One thing you must be wary of is the market can be volatile. It could benefit you but it could also have a negative impact on your investment. The numbers are just a rough guide to show what you could expect in the future.
Pick The Amount You Want To Invest
Now you have committed to how much you want to invest. The next step is to decide how much you want to invest. The key to this is to pick an amount you can afford as this will be a regular occurrence after each wage. Furthermore, you want to decide on your investment goals. Is this investment for a new home or will it be a contribution to your retirement?
Once you have established your goals, you can decide how much you want to invest. Some people choose to invest 10% of their annual income. That would be good for your retirement plan in the future. However, if you aim for more short-term goals, you will want to invest double that amount.
You may also want to speak to your employer as they can offer you a 401(K). Contributing to this account can benefit your future massively as your employer matches the amount you invest.
If you aim for much shorter goals IE a new car or home. Work out how much you would need to invest each month then multiply it by 12 months. Once you have that number, you will need to add a percentage of the annual increase. Let’s say it is 6% again, to be on the safe side. This should give you a good indication of how much money you will make.
Open An Investment Account
The next step is to open an investment account. The idea is to open an account which doesn’t charge additional taxes. You must ensure that these investment accounts don’t charge each time you deposit and withdraw money. Plus, you must also make sure they don’t take too much money for commission.
If you have set up an IRA brokerage account which you have maxed out, we advise you to open a separate investment account. That way, you can have two investment accounts and even more money for the future.
Choose Your Investment Strategy
Choosing your investment strategy is the next step for investing. You may think, put your money into one stock and then watch it fluctuate over time. However, that is not the safest way to increase the value of your money. This stock could drop in value and therefore, you would lose a significant amount of money. Yes, it can also work in the opposite direction however, you cannot predict how the stock will perform.
There are many strategies to consider when investing in the stock market. That is why you must read about these different strategies to ensure you find the right one for you. All these strategies will help achieve different goals so find one which aligns with your financial goals.
Another thing you must remember is the different areas where you can invest your money. For example, if your long-term goal is 15 years away, the stock market would be the ideal option for you. However, if you are picking your stocks, you must look at ways to save time. The best method would be to choose mutual funds, index funds and ETFs.
If you wish to be more cautious with your investments, we recommend you put your money into a savings account. You can guarantee your money will be safe with the FSCS for up to $85,000 if anything goes wrong with the bank.
If you want to reduce as much time as possible when looking for new investments, we advise a robo-advisor. These robo-advisors are great for lazy but smart investors. All you have to do is put your investment into the account and the AI will do the work for you. These will choose low-risk stocks that will gradually increase over time, ensuring the safety of your investment.
Look At Different Investment
Once you have completed the above, you must understand your different options. That includes stocks, bonds, mutual funds, and ETFs. One thing you must always remember is each investment carries a different risk. Let’s take a look at them in further detail.
A stock is when you own shares of a company and they are purchased at a share price. The share price is determined by supply and demand. Once you sell you sell your stock, the share price value could go down, depending on the number of shares sold. If you buy several shares, the stock value will increase.
Bonds are something else that an investor can buy. It is when you would make a loan to either a government or a company. They will then agree to pay you back in several years and during that period, you will gain interest on your investment.
Mutual funds are a combination of both stocks and bonds. It is preferable because investors wouldn’t need to look for individual stocks and bonds themselves. Instead, they can purchase a mutual fund which has a diversified portfolio. Usually, investors would invest in index funds however, these will usually charge lower fees.
There are many things you can invest your money into however, you must learn the market before investing. The last thing you want to do is invest all your money for them to lose. That defeats the purpose of investing.
Another thing to remember before investing is to check the stocks. People make the mistake of investing with unofficial brokers who will take their money and get nothing in return. There are many different types of online scams that you must be wary of before investing so ensure you check the broker and the stock before you invest.
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