Watch our video on the best way to start investing in stocks.
What Is the Best Way to Start Investing in Stocks?
- Here are the best ways to start investing in stocks:
- Determine your trading style.
- Save money to put into an account (Minimum $5000+).
- Open a brokerage account.
- Read books on trading and investing.
- Take courses to help you learn.
- Candlestick patterns are the most important indicator.
- Practice trading in a virtual account first.
- Slowly scale your way up with real money.
- Risk management is the key to success.
All of this is necessary to consider before you open your account. You will need to select a broker. Then the time frame you are wanting to achieve your goal by. Information is the best investment for beginners.
You can begin your path to investing in two primary ways. A passive or active investor. Are you the do it yourself kind of person or do you have a very busy lifestyle with work and family?
- If you are the hands on kind of investor but not full time day trader then this guide will show you many valuable insights. Also check out our information on swing trading by taking our swing trading course.
- Let's say your life is complicated with family, work or school. Then having an advisor or conditional order set up could be what you need. You will not have to do as much research but need to be aware of the hands off style of risk. These are great options for busy people that want to do other things besides watching the market.
1. Selecting a Broker
For a hands on investor you are going to typically need to open an investment brokerage account. That's the best way to start investing in stocks. There are many brokers in the US and abroad. Much of the community here at Bullish Bears use either Thinkorsdwim by TD Ameritrade or CMEG.
Pro Tip: Your 401(k) is a investment account. You may already be invested in stocks likely through several mutual funds. Often a 401(k) will not offer you access to individual stocks. If your employer will match your input, then it could be worth contributing to despite a limited investment selection.
For the busy investor you will want to look into two solid options. Open an investment account and learn long term investment strategies like options or ETFs’. Consulting a financial service that will trade your funds for you is another viable option. Keep in mind all services are different; varying fees and the selection of stocks will vary.
2. ETF's Vs Individual Stocks
The best way to start investing in stocks is to look at ETFs vs stocks. When buying an ETF you are buying a small piece of many companies. An ETF represents many different companies. Indexs like the S&P 500 have several companies in it and as the index moves your profits will move up or down accordingly. Combining multiple funds will allow you to diversify your portfolio.
Individual stocks allow you to buy specifically in a single company. You can buy as many or as little as you would like. Buying a company you like can be a good thing.
The more positive sentiment behind a company typically the better it will do. Following a hot stock pick or a guru's idea can lead you to financial ruin. Instead get stock market training for yourself.
When selecting your individual stocks for long term investing you need to look at a few components, history of the company, their future relevance and are they a good value. Risk management is always key.
3. Budgeting: Best Way to Start Investing in Stocks
Finances are the reason that we're all here. We want more and we want to make it in a smart and timely manner. The proper amount of budgeting will allow you to invest in a secure manner.
You need to be able to tell the difference between what you can and can't spend. A good rule of thumb that has been sent for many years, is 10%. Take 10% of what you make and set that aside for your future. Now at first, 10% may not sound like much. However, you will get very accustomed to being without this small 10% and you'll notice your life won't be lacking any.
Once you have somewhere between $1,000 to $2,000, you'll be able to build a small but diversified portfolio. Over the years you will see your investments grow many times more than your initial investment.
Learn a couple other ways to manage your risk of overtime check out our article on risk management.
The only way you can make money with investing is to start investing. You now have some of the basic tools and resources to further educate yourself with investing. Choosing to go short or long will be entirely up to you.
We highly recommend that you do thorough research into any of the brokers you may be inquiring. Look into the fees and what they will be offering you. Taking your first steps can be scary but typically are well worth it in the end.
Will your lifestyle allow you to manage your own account or will you have someone else do this for you?