Beginner’s Guide to Stock Market Investing
Investing is a smart way to set aside money that can grow over time. But, many people don’t know enough about stock market investing and make mistakes that cost them a lot of money. So, we’ve put together this guide to help you invest the right way.
What Kind of Investor Are You?
Before you go ahead and commit your money, you need to determine what type of investor you are. You need to evaluate your risk appetite and only buy suitable stocks. For instance, if you have a low-risk tolerance, you may not want to invest too much in the stock of small companies, even if they seem like they have a promising future, because there’s no telling whether they’ll exist 10 or 20 years from now.
Ways to Invest
Online brokers: Brokers can be of two types: full-service and discount. Full-service brokers offer you a range of traditional brokerage services including financial advice. Discount brokers are now the norm and they offer you the tools to decide which stocks to purchase on your own.
Robo-advisors: Robo-advisors use technology to help investors make investments at a lower cost. Currently, even the largest brokerage firms offer Robo-advisory services. If your goal is long-term wealth-building, it’s likely that you will do better with a robo-advisor.
You can also choose to invest through your employer. But, it’s a good idea to invest on your own as well.
Why Diversification Is Important
While it’s important to invest in stocks to create wealth over time, don’t make the mistake of putting all your money in a single company’s stock. Remember that if the company doesn’t perform as per your expectations, you may lose money. To keep this from happening, you need to invest across asset classes and sectors to make decent profits, despite market volatility and the performance of different companies.
Remember that you don’t want to invest any money you will need in the near future, say to purchase a car on loan or pay your kids’ college tuition. You should only be investing money that you have to spare, and stay invested for the long-term, even if the value of your investments drops from time to time.
