Since you’re reading this sentence, you must be already thinking about your future. You know that it’s not too early to start saving when you still have college classes to take and assignments to finish. And you’re ready to kick off your plan to multiply your savings and build your long-term wealth, too.
This is where using your savings to buy stocks comes in. Let’s say you’d love to retire with $1 million in your savings account. Your annual ROI is 8%. If you start when you’re 22, you’ll need to put to work just $310.45 per month. If you start a decade later, you’ll have to set aside almost twice as much ($709.95)!
That said, investing takes time, especially in the very beginning while you’re still learning the ropes. So, make sure you can invest your time in this endeavor first. You might want to google “pay someone to write my essay” or cut down on your extracurriculars. And then, follow these six basic tips meant to help anyone get started in the world of investing!
1. Review Your Current Financial Situation
Before you put your hard-earned money into a brokerage account, ask yourself one question. Is now a good time to start purchasing stocks for you?
How would you know? Here are three major things you should consider:
- Your credit card debt. If you have any, get rid of this debt before you even think about stocks. It’ll be a better use of your savings. The reason? The interest rate will eat up whatever profits you make from stocks.
- Your student loan debt. This is a tricky one. You need to look at the interest rate of your student loan and compare it with your potential ROI. If the former is higher, then investing before getting rid of your student loan isn’t going to pay off.
- Your savings. What is your initial capital? How much will you be able to set aside every month to build your portfolio? (Remember: never go into debt just to keep buying stocks.)
2. Decide Where to Open Your Account
Once you have your current financial situation sorted out, it’s time to get your hands dirty. First, to start investing, you’ll need to get yourself a brokerage account. Here’s where you can turn to for that end:
- Full-service brokers. These are your traditional brokers – Charles Schwab, TD Ameritrade, and the likes. They don’t just allow you to buy and sell stocks. They are there to advise you on your portfolio, finances, and goals. Minimum account sizes often start at $25,000 there.
- Discount brokers. They don’t offer any personal approach like their full-service counterparts, but they allow you to trade stocks. There’s typically no or very low minimum required to get started. Some examples include Merrill Edge, Fidelity, and Webull.
- Micro-investing apps. Think Robinhood, Acorns, Betterment, and M1 Finance. These apps allow you to trade fractions of stocks. So, you can start investing with just a couple of dollars.
When you shop around and compare different platforms, make sure to pay attention to:
- Minimums required to open an account;
- Range of services and how well it matches your needs;
- Level of control over your portfolio;
- Commissions and fees.
3. Don’t Try to Outsmart the Market
Perhaps, you’ve become interested in investing after the GameStop short squeeze. Or maybe, you’ve read the stories of people who became rich seemingly overnight thanks to one great stock choice.
But those are the outliers, and you have to be incredibly lucky to wake up rich one day because you bet everything on one company. There’s little chance you’ll go on to become the next Timothy Kim.
So, don’t try to beat the market (at least, not from the get-go). This isn’t a “get-rich-quick” scheme. If you want to succeed at investing, opt for steadily-growing stocks and keep in mind the big picture. Your goal should be to build wealth in the long run.
4. Start Small & Simple
Unless you want to turn to a full-service broker, you don’t need tens of thousands of dollars to get started. With micro-investing apps, you can even make use of your spare change.
So, don’t put this off simply because you don’t have a stash of money lying around. Even if it seems like too little of an investment, put it to work anyway – and keep growing your portfolio.
When it comes to the types of investments, you have several types of assets you can opt for:
- Individual stocks. This is the most obvious option – you select a company and purchase its shares.
- Mutual funds. In this case, you give your money to a fund manager, and they make a selection of companies that it gets invested in.
- Index funds. These are similar to mutual funds, except that the list of companies is determined by the ones that comprise a particular market index (e.g., S&P 500).
When you just get started, opt for index funds. First, you don’t bet your money on just one company. And that’s not just that: these enterprises have already earned their way into the index, making them a safer choice.
5. Remember to Diversify & Play It Safe
Ever heard of the “don’t bet everything on one horse” rule? It applies here, too. Of course, if you start with just $10, there might not be much room to diversify your portfolio. But as you invest more and more with time, remember to purchase various assets.
Here are several tips on diversifying your portfolio:
- Split your money between both U.S. and international companies;
- Opt for investing in index or mutual funds;
- Put some money into small-, mid-, and large-cap funds.
6. Be Patient
Above all else, remember: this is a marathon, not a sprint. If you want to put your savings to work and minimize your risks, it’ll take time – years, probably – to see it bear fruit. (Of course, if you’re a risk-taker, you might want to try profiting off crypto or other high-risk assets.)
Sometimes, you’ll see the market drop. But that doesn’t mean you should sell off your assets! If you do, you might end up buying high and selling low – and that’s a big no-no.
Instead, hold onto your assets and wait – the market will rebound. Yes, it might take a year or several in the worst of cases, but the rebound is inevitable.
Finally, take all the experts’ opinions with a grain of salt. Now and then, you’ll see someone predicting a market crash because of some obscure stats – but those predictions rarely pan out. Instead, bring yourself up to speed on the basics of investing and learn to make conclusions yourself.
This has been your mini-guide to getting started in the world of investing. Hopefully, the whole endeavor is clearer for you now, and you have an idea of how to go about it.
Even if it still seems somewhat complicated to you, don’t worry: it’s completely natural. That’s because it can be. But don’t let this get in your way. Remember: the sooner you start, the easier it will be to build your wealth!
Just start small and get the lay of the land first. Once you get the hang of it, level up your game step by step until you become a self-made pro!