Over the last couple of years, I have met many people who are hesitating to enter the stock market. They know that they should be getting into the stock market, however, something is holding them back from placing that first trade. Whether it be fear, lack of education, or too much pride, they cannot place that first trade. I was one of these people last year as well. My personal hangup was a lack of education. I just didn’t know how to get started. Finally, after lots of reading and some YouTube videos, I jumped in. It has been a fun ride and I have found investing to be an essential part of my day to day life. Investing, even small amounts of money, is a great start to building a better life for you and your family. Investing is different than putting money into your 401K or Thrift Saving Plan account. Think of those accounts as savings monies that end up being invested in the stock market. However, you don’t have control over individual stocks nor can you buy and sell at your leisure. Investing is much more than putting money into a 401K fund. My goal for investing is to build an income stream that my family can live off of. Discovering your goal is one of the first steps in learning how to invest. With that, let’s jump into the 8 steps you can take to safely enter the market.
1) Prepare your mind. Investing has a lot of ups and downs. Sometimes you will feel like a fool for investing in a certain stock or selling too early. Part of life is making mistakes and if you feel as though you cannot make a mistake, then investing will open your eyes. Mentally you need to remember why you are investing. Investing is one of the only ways (besides real estate, business, and commodities) that your money will give you a significant return. Your standard savings account interest rate is very low and over time your spending power will decrease. In order to keep up with inflation, you need to put your money to work, and this means the stock market, business, real estate, and/or commodities.
2) Create a balanced TOTAL portfolio. The reason I say TOTAL portfolio is because your portfolio includes more than the stock market. My balanced portfolio includes my checking accounts, high yield savings account, bonds, stocks, and real estate (Fundrise). When you use a balanced total portfolio you have confidence in your ability to survive a market downturn. This confidence allows you to invest more aggressively. It is nice to watch your stocks going up, but it isn’t as fun to watch your stocks go down. Being balanced helps to prevent total losses during s downturn and allows you to buy stocks when they are at their cheapest.
3) Use index funds. Index funds are the perfect way to get started in the stock market. An index fund contains tens or hundreds of individual stocks. They combine all those stocks together and sell them as one fund that trades on the stock market. A fund like VTI contains a little piece of all the stocks trading on the stock market. This is a perfect way to diversify your portfolio using just this one fund.
4) Dollar cost averaging. This simply means putting a set amount of money into the stock market each pay period. Do this consistently and chances are that you will come out ahead. This prevents you from trying to time the market, or buy at the lowest point. By using dollar cost averaging, you aviod looking at the price of each purchase and only worry about your money getting into the stock market.
5) Use fractional shares. While you are dollar cost averaging you will be able to use frational shares. This means that you will not have to buy an entire share each time you make a purchase. For example, if an index fund that you want to purchase costs $100 per share, you will be able to buy shares in smaller increments. For example, you buy in $5 increments over 1 year. This allows you to get invested with a smaller amount of money.
6) Use your cellphone. Nowadays, you can do everything from your cellphone. The apps I use the most all have stock trading. You can do all of your trading in a few minutes and never have to dig deeper than you want into the stock market.
7) Automate your investing. One of the best ways to become wealthy is to automate all your savings and investing. This means that as soon as you get paid, have your money sent off into all your different accounts that day. This ensures that you pay yourself first. Most times, if you wait to pay yourself last, there probably won’t be much money to save or invest. It is vital that you pay yourself first.
8) Choose your own adventure. This is the most important step. You decide how involved (or uninvolved) you will be with the stock market. You can hand pick stocks and watch them everyday or you can automate your investing and check your stock market account once a month. No one can dictate how involved you need to be. Over time you may want to start to dig deeper, but in the beginning, there is no need to over complicate things. The important thing is that you get involved and overcome any prejudice that you may have of investing.
If I had to start again with what I know now, this is how I would have began my investing career. I would have downloaded the STASH app on my phone. I would have set up the app to invest $5 a week into a total market index fund like VTI. I would have done this for at least 6 months. Once I felt comfortable, I would have started to expand my reach into more complex products and techniques. As it were, I started by investing into indiviudal stocks and that is a very tough thing to do. So take it from me, use all the tools available to you. Use a balanced portfolio, dollar cost averaging, automation, and fractional investing to your advantage and chances are you will be highly successful. More importantly, you will break any fear or intrpedition you may feel towards the stock market. This will also allow your children to see you investing and they will not have the same issues. Have a great time out there and I hope this has helped you decide to enter the stock market, safely!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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