First Time Investing: How to Begin Investing in the Stock Market
A lot of people want to start investing in stocks but they have no idea how to begin investing in the stock market. Most are terrified they will lose tons of money while they learn how the financial markets work. In this article, you will learn about beginning investing.
Do You Need a Stock Broker?
Yes and no.
You can’t just walk up to wall street with a fist full of cash and buy stocks (you need someone to place the trade for you), but no you don’t need to hire an expensive full service stock broker anymore if you just want to place a trade on your own.
The birth of online stock brokers makes it easy to buy and sell stocks on your own if you want complete control over your portfolio and you can sign up for an account with one of these online brokers in just a few minutes.
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Services such as TradeKing, E*Trade and OptionsHouse. give anyone and everyone the ability to invest in stocks, mutual funds and ETFs completely on their own if they want. This gives you complete control of your money, and can save you a significant amount of money in fees and trade commissions.
If investing on your own isn’t for you then you want a full service broker that will sit down with you and map out your investment strategy. There are plenty of good full service brokers out there, but I would recommend visiting one in your local area so you can sit down face to face with your broker, rather than working with one over the phone. Ask friends, family and co-workers for suggestions on a local broker in your area that you can trust.
Determine Your Investment Objectives
Why are you investing?
If you haven’t asked yourself that question, stop what you’re doing and take a few minutes to think about it. Are you investing for retirement? To pay for your kids college? To make some extra money? Because you like watching Jim Cramer on TV? From this point forward your investment objective should be driving all of your investment decisions.
Most people get in to the market (at least at first) to pay for retirement, usually in a 401K, 403B, IRA or some other specialized retirement investment account (see 401K vs IRA and Roth vs Traditional IRA for more information on these types of accounts). When you are investing for retirement you’re looking for the long term so your focus should not be on quick gainers and “hot stock tips”, it should be on secure investments that get you to the amount of money you need in your golden years.
On the other hand if you are investing for the short term, you will have a a completely different plan and may be more apt to invest in some hot stocks poised to make a quick gain.
Do Your Homework!
Never EVER jump into a stock (or any other investment) without doing a little homework!
Sometimes it can be difficult to separate emotion from logic when you start investing. It can be tempting when you hear about a stock to want to jump right in before you miss the boat completely. Maybe you have a strong gut feeling the stock is going to make a quick jump but never, ever rush into it!
Take time to research the stock thoroughly. Does the company have a lot of short term debt that could bring down their earnings in the next six months? How does their price to earnings ratio compare to the rest of the sector? Do their earnings look good because of sales growth or are there other extraordinary factors that won’t last?
If you aren’t sure, take a couple hours to investigate. Read news about the company, look over their financials and/or listen to their latest earnings report. You will be surprised how much you can learn in just a few hours of research and it could save you from taking a big loss.
This one hits close to home because when I first started investing I would watch my stock all day and when it would go down I would panic and sell. NEWS FLASH: Stocks go up and down all the time!
This is where doing your homework is important. If your stock goes down and you just bought it on a whim you dont know if something is really wrong or if the market is just having a bad day. If you know your company is solid it might be a great time to buy MORE shares when the price drops (see: What is dollar cost averaging?) but if you didn’t do your homework then you’ll probably just panic and sell.
It takes a lot of patience to invest in the stock market, and despite the recent turbulence in this terrible market there has been no better investment over the past 50 years than investing in stocks so if you can be patient, do your homework and stick to your investment objectives you will usually make out over the long haul in the stock market.
Popular Online Brokers
Other Great Beginning Investing Resources
- Jim Cramer’s Getting Back to Even
- Investing Online For Dummies
- The Intelligent Investor: The Definitive Book on Value Investing.
- How I Made $2,000,000 In The Stock Market