So, you want to start investing in the stock market, but the whole idea seems kind of confusing and a bit overwhelming. Where does one even start? Well, let me tell ya, if this dum-dum can figure it out, then so too can you! After 18+ years of trading and investing, I have certainly learned a thing or two. More times than not, I had to the hard way, through trial and error. Luckily for you, in reading this blog, I am confident that you can benefit via learning from my previous mistakes. So here goes:
1. Know why you are investing:
Sure, we all want to make money. It’s the main reason why we invest in stocks. But what’s your situation? Are you young, in your early 20s? Maybe older… late50s? Are you investing for a child or a family member (perhaps college education)? Do you want to make a living as a trader or is your plan to build a retirement nest-egg? These are important questions to ask before getting started. These decisions will shape the type of investments that you will make going forward.
2. Get Started:
Where should you begin and what’s the first step? First of all, find a good brokerage account. I use TD Ameritrade and I’m very happy with their site, as they provide solid trading tools, great customer support, and a no-nonsense flat $7 trade fee.
Head to their website (or whatever brokerage site you choose) where you will find a brokerage agreement form to be printed, filled out, and signed. Once complete, send it to their provided address, along with a check for the amount you wish to invest. Last time I looked, you can open an account for just a few hundred dollars.
If you're confused about anything, simply give the brokerage site a call (that’s what they are there for) and tell them you want to get started. They will walk you through the process, making sure that everything goes smoothly.
After the brokerage house receives the check, you will be sent an account number and instruction for setting up your online password. Once you have completed that, you will log in and see that your money is on the sidelines. This is basically a checking account, waiting to be invested in stocks. You cannot lose or make money while your cash is on the sidelines.
3. When to get in:
Now! That’s the short answer. The stock market has gone up for the last 100 years. That’s what it does. Sure, there will be healthy pullbacks of 10% or more from time to time. But in the long run, the bull charges ahead.
I recommend getting started right away. With that said, you don't have to fire all of your bullets at once. In fact, I would recommend that you use a dollar cost on average, buying a little at a time. Having freed up cash on the sidelines (ready to be put to work) is always a good thing. When a correction or pullback (which will happen) occurs, you will have funds available and be able to buy stocks at a nice discount.
4. What stocks to buy:
Now that your account is set up, you are ready to roll! Don't worry, this is the fun part! If you take just one thing with you from this blog, make it be this: FOLLOW TRENDS AND INVEST IN WHAT YOU KNOW AND UNDERSTAND! You are a consumer. You spend money. Where does that take place and what are you spending that money on? Where do your friends spend their cash? What type of restaurants or fast food do you like? What kind of shoes do you wear? What’s the line looking like when you go to Starbucks? How about the parking lot when you drive past Texas Roadhouse? When watching TV commercials, whose ads are the best and whose catch your attention?
That’s how money is made - by investing in what you know and understand! When getting started, don’t get overwhelmed with PE ratios, market caps, EBITDA, charts, or 10-day moving averages. These metrics can be learned about as you progress in your investing career.
5. Placing your order:
This can seem a bit confusing due to the fact that there so many different types of orders: limit, limit stop, limit buy, stop, stop loss, and market. Again, don’t get overwhelmed. As a beginner, I recommend a simple market order.
Here is how it works: If Nike is trading at $52.15, a market order will fill your order at that price (give or take a few pennies). Boom! Just like that, within seconds, you now own part of the company. Congrats!
6. Be patient and follow the companies you own:
After you have invested in the companies you like, its time to sit back and be patient. The next time you log into your account to check your balance, a Lamborghini isn't going to jump out of your screen! To build, it will take time and discipline. What’s important in the beginning is to simply get your feet wet and acquire a good feel for how everything works. Once that takes place, then maybe you can start making a few trades.
7. Developing your style:
No two investors are the same, as many different trade styles or strategies can and will succeed. Once you begin dabbling in the market, you will gradually begin to build your own unique style of investing. This will depend a lot on your personality, time horizon, and risk tolerance.
A long-term investor (who may be building for retirement) might buy a handful of solid dividend-paying companies: stocks with proven track records such as Disney, McDonald's, Boeing, and Coca-Cola. His style might be to invest, sit back, reinvest dividends, and avoid making many trades at all.
A regular investor (such as myself) might buy a stock for a period of weeks, months, or even years, getting in and out due to earnings, headlines, or a change to the trend or fundamental story. (I typically make 150-200 trades per year.)
Perhaps you are the more aggressive type that’s into reading charts, trend lines, and watching daily moving averages. If that’s the case, you might be transforming into more of a day trader who could make numerous trades per day.
These are just a few examples. You really can’t place any investor into an exact category because no two are exactly the same.
Invest in a style that suits your personality and feels comfortable to you.
Note: If you are investing a smaller amount into the market ($3k or less) trading a lot is probably a bad idea, as the $7 fees per trade will add up quickly. A better approach might be to buy and hold for a while (until you have enough to make more frequent trades).
8. Set your investment rules:
You must have a list of rules in place. Like the 10 commandments, they must be set in stone, never to be broken. An example of a few rules that I live by are:
—Never attempt to time the market.
—Never invest in companies that you don't understand.
—Write down every trade and explain why you made it.
Anytime I get into a trading funk or do something stupid, more times than not, it’s because I have strayed away from my set of rules.
As long as I stick to my commandments, I can accept whatever the outcome might be.
9. Don’t trade on emotions:
It’s easy to let your emotion get the best of you when it comes to trading. When money is on the line, we tend to do some really stupid things. This is especially true when it comes to investing.
It is extremely important to keep your emotions in check. Have a game-plan and stick to it, no matter what! Don't let market volatility drive you toward making a bad decision. Typically, when everyone is selling, you should be buying. When everyone is buying (in a euphoric manner) you should be selling.
10. Continue to follow trends: The world is changing at a very rapid pace, faster than ever before. As a result, what’s hot and cool today might be a flash in the pan tomorrow. Keep your eyes wide open at all times and adjust your portfolio accordingly. The moment you stop being an AWARE consumer is the moment that your portfolio plummets. The greatest investors continuously follow trends!
11. Never Stop Learning: Keep reading. Keep studying. Listen to audiobooks. Watch CNBC. Make today's A-game… tomorrow’s B-game. Keep setting the bar higher. The more you know, the better your edge will be. Continue to learn and improve. Just like following trends, this is a never-ending game…
12. Have fun: If you're invested in stocks and it's making you miserable, then it’s probably not for you. Some people simply cannot stomach the swings and it becomes too stressful. It affects their everyday living and causes them to lose sleep at night. If that’s the case, it’s all good, just move on to something else. There are plenty of ways to make a buck in this world.
On the opposite end of the spectrum, you might grow to love it. Trading and investing can become a true hobby and a passion. Saturday and Sunday (the days where the markets are closed) could become your least favorite days of the week. Who knows? Either way, try to enjoy it! Turn it into a game or a challenge! If you want to be really good at it, then that’s a big huge part of what it takes.
That’s it! As you can see, investing in the stock market isn't tough at all; you don't have to live on Wall Street or graduate from Harvard in order be a good investor. So, if it’s something that you have been thinking about or interested in, give it a try! I think you will be glad that you did!
Good luck, and I hope to hear from you soon!
Remember, I'm not a financial advisor and all opinions are mine. Investing in stocks involves the risk of loss. Seek advise from your personal financial advisor before getting started.
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