How To Invest In Stocks

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Investing is one of the best ways to increase your overall wealth, and the steps outlined below will get you started on the right foot.

Choose Your Way How To Invest In The Stock Market?

Stock investing can be approached in several different ways. For most people, the “the best approach to investing” is the one that fits your needs, personality, and goals. To start things off, you need to choose between taking care of your own investing or paying someone to manage the stocks for you.

If you are the “do-it-yourself” type, this article is for you. In the steps that follow, you will see a breakdown of the steps that DIY investors need to know to be successful. (Check out our article on the best brokers if you already know what stocks you want to invest in and just need a brokerage.)

If you are the “done for you” type but don’t want to pay the high prices for a portfolio manager, robo-advisors might be the right choice for you. Robo-advisors are low-cost and guide you on your investing journey based on your specific goals. Click here to see the top robo-advisor services offered by the major brokerage firms.

Either way, you’ll want to utilize a stock research site to help you keep tabs on the market. After you’ve made the decision, it’s time to start looking for a brokerage or trading account.​​​​​​​

Investment Account Opening

In general, the first step in investing in stocks is to determine the type of investment account that is best for you. Since you are probably the do-it-yourself type, you’re probably going to get a brokerage account. Many of those brokerages also offer robo-advisors for investors who would like a little bit of help. Below you’ll find an explanation of both of these two different processes.

It’s important to remember that both robo-advisors and traditional brokers have options for opening an account on the cheap with many options offering $0 Account minimums and $0 initial deposits.

Opening a brokerage account yourself

Probably the least expensive and quickest way to start buying and selling stocks is through an online brokerage account. Using that account as the foundation, you can open many other account types such as an IRA (individual retirement account). Check out our detailed article to opening your brokerage account if you’d like a step-by-step guide.

Two of the best online stockbrokers (especially for beginners) are TD Ameritrade and Merrill Edge. Both of them offer a $0 account a minimum and only charge $6.95 per trade.

Opening a robo-advisor account

While many people might believe that using a robo-advisor service would be very expensive, the fees are significantly lower than paying for a human portfolio manager. For example, most investment managers charge between 1% and 5% of your account balance annually. Compare that to most robo-advisors that charged around 0.25% of your account balance annually.

But what do robo-advisors do? In general, the same things that most human investment managers would do. Since investing is mostly a process of developing and following mathematical strategies, the systems that are developed by expert human investors can be programmed into algorithms. Robo-advisors can then follow and apply those strategies to your investments. That means your robo-advisor account provides you with decades of carefully crafted investment strategies from some of the top portfolio managers in history.

Robo-advisors design your stock investment portfolio based on your goals. When you open your account, you will be asked several questions about your goals that the robo-advisor will then use to design your portfolio. The one possible drawback to robo-advisers is that they are inherently defensive. That means they are best for long term value-investing and are generally not recommended for day traders. 

(Day traders are a specific type of investor who buy and sell individual stocks within short periods).

Two of the best robo-advisors are Betterment an Wealthfront.

What’s the Difference Between an Exchange Traded Fund (ETF) and Traditional Stocks?

  • Traditional Stocks. Traditionally, most investing has been done through purchasing shares of companies, called stocks. For example, if you want to own stock in Amazon, you will need to purchase a share of Amazon stock. As the stock price goes up, so does the value of your share. If the stock value goes down, so does the value of your share. Purchasing individual stocks provides investors of the greatest control over their portfolio. However, building an appropriately diversified portfolio that incorporates all aspects of asset allocation often requires a surprisingly sizeable initial investment. For example, a single share of Amazon stock today is $1,800, a single share of Google is $1,182, and a single share of Berkshire Hathaway is over $300,000. (Yes, you read that right.)
  • Exchange-Traded Funds. An ETF is a low-cost investment that allows you to own small pieces of many different stocks indirectly. First, a type of “Index” or listing of specific stocks is created, and each stock is assigned a percent value. Funds are then invested into that ETF according to the percentage that was assigned. Clients of each specific brokerage are then allowed to invest in the index fund and indirectly own small pieces of as many as 1000 different companies in a single ETF. 

That is an excellent way to diversify your portfolio as it allows you to own small percentages of many different companies without needing to purchase individual shares of those stocks. In practice, an ETF allows you to benefit from the explosive growth of Amazon or Netflix without needing to invest all your money in just one company. That provides you with the benefit of growth while minimizing the risk of and individual company failing.

A portfolio consisting of mostly ETFs is recommended for the majority of investors because it dramatically reduces risk while providing consistent growth over time.

Note: Your job might offer you an investment account called a 401(k). These are excellent investment tools for retirement; however, they do not provide the ability to invest in individual stocks, and your choices on ETFs is also limited. Generally, the only reason to invest in a 401(k) is because of the employer matching. Once you are contributing enough to maximize the employer matching on your 401(k), we recommend that you invest the rest of your money into other account types.

Get started With Your First Investment

Stock investing can be confusing, and many of the strategies and approaches are intricate and detailed. However, it’s important to note that the majority of successful investors focus on the basics when building their portfolio. For example, Ray Dalio recommends never having more than 30% of your portfolio invested in stock, and 90% of those should be invested in index funds. Beyond that, Warren Buffet recently said that one of the best investments that Americans can make is in an ETF of the S&P 500. That means NOT purchasing shares of the individual companies. 

However, even if individual stocks make up a small percentage of your total portfolio, it is worth your time to learn how to research stocks.


Looking for the Best of the Best?

Check out our 2019 roundup of the best brokers for stock investing. In that article, you’ll find detailed explanations on brokerage accounts, minimum deposits, top educational materials, and other metrics that will help you determine the best trading platform for your trading style.


Topics Around How to Invest in Stocks 

Beginning Investors

All of the investing information in this article is meant for new investors. However, the biggest tip we can share with beginners about investing is that success in investing isn’t as complicated as it may seem.

Why? Because there are more tools available to you today than there ever have been before. One of those tools is the ETF (or index fund) which provides a powerfully simple way to diversify your portfolio while only holding a small number of total investments. They also offer unparalleled risk protection, and we strongly advise beginners to use ETFs as the core of any portfolio.

An easy bet? The S&P 500 ETF gets you small percentages of 500 of the top-performing companies in the USA. Those 500 companies operate across every sector of the US economy.

Limited resources

If you have limited resources as a beginning investor (or even as a more mature investor), you face two problems:

  1. Minimum deposits – Many accounts require a $10,000 deposit just to open the account.
  2. Diversification – To avoid the risk of any single company going bankrupt, you should invest in a variety of areas and sectors.

Until the past ten years, both of these factors were significant roadblocks to investing. However, both of these challenges have been solved through ETFs, which provide a low-cost way to diversify. Today, many brokers offer ETF share prices as low as $25. Some brokerages, such as Charles Schwab and Fidelity, even offer ETFs with no minimum at all. Since ETFs are inherently a grouping of a variety of stocks, they also solve the diversification challenge.

Starting with stocks

Many people wonder if beginners should invest in stocks. Our answer is “Yes!”, provided you’re financially stable enough to not need that money for at least a few years. Investing is a long-term activity and putting money in and out of the market almost always causes more harm than good.

However, beginners are better served by investing through ETFs than purchasing a direct share of stock. Why? Because they provide a highly diversified portfolio and strong risk protection without the time-consuming research required when building a portfolio stock by stock.

Best investment choices

From our perspective, the best investment choices for beginners are low-cost ETFs. When you purchase a single share of an ETF, you get a big chunk of the market in a single transaction.

It’s important to point out that ETFs follow some standard or benchmark such as the Vanguard Mega Cap Fund (MGC) or the iShares Core S&P 500 ETF (IVV). That means your investment in that fund will mirror the performance of that benchmark. For example, if you own shares in the Vanguard Financials ETF (VFH) and the financial sector is growing, your investment will grow as well. This is important because it means the dream of “beating the market” isn’t going to happen. On the flip side, the market can’t “beat” you because every success it has is your success as well.

Deciding where to invest

Answering the question “Where I should invest my money?” is a difficult challenge. Answering that question comes down to two different factors:

  • How much time you have to achieve your goals
  • How much risk you’re willing to take

When we are considering timeframe, it’s crucial to balance your portfolio around the amount of growth you need during that timeframe so that you can achieve your goal. For example, if you’re planning for retirement and your retirement is more than 30 years in the future, most people are safe placing the majority of their portfolio into stocks. This provides time for the stocks to grow and for dividends to be paid. We strongly recommend that profits and dividends be reinvested into the stock or used to purchase bonds which are a safer form of investment but have a slower rate of growth.

However, if you are saving for retirement and your retirement is only ten years away, we recommend that your portfolio be mostly in bonds with a smaller percentage in stocks. This allows you to benefit from the growth aspect involved in stocks while still benefiting from the safety aspect of bonds.

The other factor is risk tolerance which is more of an emotional perspective than an external standard. When the stock market goes down, people tend to panic and sell their shares in their stocks. This is a guaranteed way to lose money. If you’re unsure about how you would behave in these situations, please check out our other article about how to determine what you should invest in.

The best stocks to invest in

For beginners, the answer to this question is again ETFs. However, with each passing day, there are more ETFs to choose from, and the options can be confusing. 

For advice on your specific financial situation, we highly recommend consulting a fiduciary advisor. That said, many investors have found the conservative approach offered by Ray Dalio to be invaluable:

  • 40% in long-term bond ETFs
  • 15% in intermediate-term bond ETFs
  • 7.5% in gold ETFs
  • 7.5% in commodity ETFs
  • 30% in stock ETFs

Which ETFs should go into each “bucket?”

Choose the highest recommended ETFs with the longest successful track record in each sector and “Keep It Super Simple.” As your investing skill increases (because you’ve been faithfully reading our articles at Business 24), you’ll know how you can expand and adjust your portfolio to maximize your success.

Stock trading Vs. stock investing

Many people consider stock trading and stock investing to be the same thing. However, the term “trading” usually refers to buying and selling a specific stock within a short period. While stock trading can be very lucrative – and some people have made millions of dollars doing it – it is generally not recommended for beginners. This is because it requires a significant amount of research and comes with a massive amount of risk.

We strongly recommend that beginning investors focus on a “buy-and-hold” strategy through purchasing ETFs for the long-term.

At Business24-7, we focus on maintaining high editorial standards and assisting you in making profitable financial decisions. As part of this, we feature many products from our partners in our articles. This does not affect our evaluation of their services.

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Stefan Grasic (Dipl.-Jur) is the World Wide Director of research for Buisness24-7 and has considerable experience in the financial and investment niche, but also enjoys writing articles for the general readership. Stefan is an active Crypto, Forex and general investment researcher advising blockchain companies at their start up level. He keeps fit by mountain biking, surfing, skiing and lots of other adrenaline sports.