Traditionally, we have been taught to work hard, save money and stay away from risky investments. Well, if you had saved $10,000 a decade back in a US bank account yielding a savings rate of 1%, you would have made a little over $11,000 only. However, if invested in the S&P500 stock index, the same money would have grown to over $25000, going by Business Insider, which says the S&P500 grew at 10% annually over the last decade. Such is the power of compounded returns in the stock market. If you are a beginner, you may have apprehensions about risks in investing in stocks, and you may hesitate to get your feet wet. But fear not, this article will lay down six easy ways to start investing in stocks.
1. Invest Using Robots
These days, many trades are happening using robots through preset algorithms. The benefit of using algorithmic trades is that you can capture market opportunities in real-time and place orders lightning-quick automatically. You can avail investment services like portfolio rebalancing, strategy-based investing like growth, momentum, or value investing using robots. RoboMarkets is one such zero-commission brokerage that uses robots for hassle-free algorithmic trading. You can set your risk preferences and return expectations, relax, and forget about researching aggressively on stocks with real-time robot trading.
2. Learn The Basics Of Investing
The first step towards investing in stocks is to understand how businesses run, understand economic trends, get into the habit of reading news and finance or business books, and get acquainted with basic math on compounding. Some good sources of learning finance or business concepts are Investopedia, the Wall Street Journal, and Youtube videos by The Motley Fool or Business Insider. You can also read books on investing by some successful investors like the Intelligent Investor by Benjamin Graham, One Up on the Wall Street by Peter Lynch, and The Little Book of Common Sense Investing by John C Bogle. These books will help create a mindset of investing and teach you the fundamentals of stock market investing. While learning investment, stay away from sources that give you tips to get rich quickly in the stock market. There is no such way, and success only comes through investing after due diligence.
Test The Waters With Virtual Trading
Before jumping into investing with actual dollars, you can get your feet wet by participating in virtual trading or investing games. These games simulate stock prices in real-time and help you to compete with other traders in a virtual environment without the risk of losing any actual money. Once you have enough practice, you can then jump into the stock market.
As a first step to investing in stocks, you can start by opening a brokerage account. There are several of them like TD Ameritrade, Charles Schwab, Fidelity, etc. These brokers give multiple service options apart from investing in stocks like wealth management, tax filings, advisory services on best stock picks, etc. You should read their offer documents carefully as most full-service brokerage firms have high commission and transaction fees. Go for low commission advisory brokerages that give sound recommendations and do not promise you unrealistic returns. You could also do some research yourself on fundamental and technical analysis of stocks to pick the right stocks to invest in and then invest through discount brokerages that charge zero commissions.
If you are not the risk-types and do not want to invest directly in stock equity, you can choose the path of managed investing by investing in mutual funds. Mutual funds are aggregated from several investors, driven by an institution that invests in various stocks in bulk with adequate research and analysis. As the stock prices appreciate, the mutual fund also grows, yielding long-term returns on your invested amount too. With mutual funds, you can diversify your risk on a more extensive portfolio size.
Mutual funds usually charge fund management expenses irrespective of the returns and also come with loss risks. Hence, it would be best to select a mutual fund with a reasonable expense ratio. Some good mutual funds with proven management are Vanguard, Fidelity, and JP Morgan.
Index and Exchange-traded funds are excellent ways to use lost expense mutual funds to track indexes like S&P500 and carry out passive yet low-risk investing.
If you have a challenge saving enough to invest in stocks, you can consider investing a small portion of your salary into the retirement fund that you have with your employer. Your 401(K) retirement account invests part of your portfolio in mutual funds and direct stocks. The retirement fund will ensure you consistently put a small contribution to your account till your retirement, which takes advantage of dollar-cost averaging to give you an extended compounded return at the time of retirement.
The above points cover all the direct and easy ways of investing in stocks. Remember, always do your research on the company’s business prospects, macroeconomic trends and invest according to your risk appetite and financial condition. Do not get tempted by get-rich-quick schemes and fall into the trap of greedy brokers. With that, we wish you a prosperous investment journey through the stock market.