A lot of people these days want to learn how to start investing in stocks without needing someone to hold their hand. Come to think of it, I’ve yet to meet someone who doesn’t like the idea of passive income. Passive income is money that you can generate without having to invest any additional thought or effort. Sounds good doesn’t it?
Heck, I spend at least an hour a day cooking up different ways to make money when I sleep. And, one of the tried and tested methods is by investing in the stock market. It’s literally a no brainer.
The best way to start investing in stocks at 18 or ANY age is to start NOW! Because in the words of the legendary John Bogel, the greatest danger to your financial health isn’t a stock market crash; it’s out of the market. But you have to know here and know how to start investing in stocks on your own.
To succeed, you have to become adept in picking stocks that are guaranteed to gain value over time. Moreover, you have to be willing to commit your cash to your investments for a significant period of time.
The good news is that even novice investors can succeed in this arena by simply gaining the right help. In fact, I’m here to give you a little bit of help and show you the best way to start investing in stocks.
Chart by TradingView
How to Start Investing in Stocks
Here’s how to start investing in stocks:
- Decide your investing style: day trader, swing trader, long term
- Choose broker based upon your trading style
- Fund your account
- Take a course based upon your trading style and make a few practice buys
- Learn candlestick patterns
- Study both fundamental and technical analysis
- Again, practice trading in a paper trading account
- Manage your risk
- Always remember to take your profits along the way
Basics
Do you already know how to start investing in stocks? Well if you don’t, listen up. First you have to have a comprehensive understanding of what stocks are.
Organizations are broken down into tiny parts known as shares. These shares are purchased by anyone with a belief in their future success. Executives are always concerned about “share holders” and providing value for them. You’ll often find that top share holders of companies will have influence over the company. If the shareholders don’t like the CEO or the direction of the company…they’ll make it known.
If you buy shares of a company while it’s still in its formative stages, your wealth will grow as this same business increases its revenue and continues to grow in overall value. Some of the metrics that people will look at that show good value over time.
Value
For “value” investors look at P/E ratios, price-to-sales numbers, debt-to-equity percentages and enterprise value-to-EBITDA. These types of fundamental numbers are extremely helpful to analyzing if you’re getting shares of a company that is in the value category.
So, if a company does not succeed, the value of each share will go down and is lost on the part of investors. This is obviously something you want to steer clear of. Looking at the stock chart, and declining fundamental data will be helpful in avoiding stocks that are down trending and in trouble for the long term. If you are looking to find the best value stocks, consider a tool like StockRover.
It can be a risky game; particularly if you cannot identify the hallmarks of continued success. In fact, people who buy shares without having the ability to make informed purchasing decisions are doing little more than gambling with their money. We use a lot of different tools (listed all over our website) to help make informed investment decisions.
The more you know in advance about investing, the less risk you’ll be willing to take and the better off you’ll be. One you’ve got a good foundation, the more likely you’re actually going to experience profit over time. That is why education is so important!
As you grow more adept in intuiting the market and its direction, the more your profits will compound and your yield curve will grow.
Let's Talk Risk
Risk tolerance is but one of many factors that investors have to consider when choosing where to invest money. More risk, more reward, but more potential loses.
Consider this carefully when you start out and be aware of the downside risk more than the upside. If you learn to invest defensively, you’ll have more gains in your account then the high risk taker who is always on the offensive.
Your ability to tolerate risk will is determined by the amount of money you have to invest, the amount of loss you’re capable of sustaining while retaining your ability to recover fully, and your overall investment goals among other things.
If you invest beyond your determined level of risk tolerance, you run the risk of having your emotions drive your investment decisions in a way that can be dangerous to your bottom line. Never let your emotions dictate your major investment decisions.
More importantly, you may sustain a loss that you’re unable to bounce back from. When this happens, your investment monies will be mostly or entirely depleted.
You could find yourself out of the game overall. Determining one’s risk tolerance, especially when you’re unfamiliar with this particular market, can be incredibly difficult.
But once you have put the time and energy into educating yourself and developing a solid strategy, your risk is significantly reduced. Hence the importance of knowing how to start investing in stocks.
The Smartest Way to Invest Your First $1,000
In our trade rooms, we talk a lot about the S&P because the majority of stocks will move in unison with the S&P. Typically if the S&P is up or moving up, individual stocks will follow.
Knowing which indexes or stocks are market indicators are key! We teach this kinda stuff in the trade rooms so you will have a better understanding on what to watch!
It’s important when building your portfolio to keep the S&P in mind. According to Mark Cuban, the best way to invest your money is to put it in a cheap S&P 500 fund.
Take $1,000 invested in the S&P a little over ten years ago. If you left it, you’d have over $3,000 today. This figure holds true even if we go back before the 2008 crisis.
If we go back 11 years, you’d have more than tripled your money. Just in case you didn’t know, the S&P 500 index fund contains 500 of the largest companies in the U.S., from Google to Disney to Exxon Mobil.
What’s great about the S&P 500 index is that you can profit from the success of the big companies without the risk of owning individual stocks. It’s the lowest cost investment that exists because the trading fees are exceptionally low.
With these 500 stocks, you own about 80% of the market capitalization of the entire United States! In other words, an S&P fund covers the majority of the U.S stock market.
What’s more, you have global exposure, because these companies get a lot of their earnings overseas. Take McDonald’s, for example.
They have shops in China, and Walmart has locations in Europe. So you wind up with a low cost, diversified portfolio that’s invested in the global economy.
Options or Stocks?
When you’re learning how to start investing in stocks online, one strategy that can go by the wayside is options. I get it though. You’re looking at stocks because they’re long term and simple to get into.
Options are wasting assets because they typically expire worthless. If you’re long term investing how does that work? One of the great things with options is that you can control 100 shares without paying the price for 100 shares. You’re basically renting shares.
If you know how to start investing in stocks, you can then move into options. As a result, you’ll have to get a little more involved and learn the components of options. However, the money will come flowing in, if you master it.
Final Thoughts
Do you now feel better about getting started investing in stocks? We hope we at least got the ball rolling for you! In a world of uncertainty, people tend to stop taking risks, but investing in the stock market doesn’t need to be scary. Even with all the drama of the coronavirus that is affecting the markets.
If you need more help, take our online trading courses.