Where to Start Investing in Stocks

Where to Start Investing in Stocks for Beginners

10 min read

Do you know where to start investing in stocks? If you’re new to the stock market, it can be overwhelming. There are many different ways to use the market, whether stock market trading or long-term investing. Diversification is key. 

Therefore, you can trade and invest if you know where to start investing in stocks. The stock market has a lot of options for making a profit. With those options comes a lot of hard work. Especially if you’re going to get into day trading or options. You also have the choice of mutual funds or stocks when it comes to where to start investing in stocks. Or do you have other ways to invest?

There are trading companies that have investing on the go. Companies like Acorns Investing have become quite popular among younger investors. 

When discovering where to start investing in stocks, check out the four primary ways to invest your money in stocks:

  1. Investing through a 401k plan or, a 403b plan if you’re in the non-profit sector
  2. Traditional IRA, Roth IRA, Simple IRA, or SEP-IRA account is another great way to invest
  3. Investing through a brokerage account (click here for our Bullish Bears review of the different brokerages)
  4. Investing through a DRIP (dividend reinvestment plan) or a direct stock purchase plan.

Hard Work

Do you know where to start investing in stocks? If you’re new to the stock market, it can be overwhelming. 

There are many different ways to use the market, whether stock market trading or long-term investing. Diversification is key. 

Therefore, you can trade and invest if you know where to start investing in stocks. The stock market has a lot of options for making a profit. With those options comes a lot of hard work. Especially if you’re going to get into day trading or options. You also have the choice of mutual funds or stocks when it comes to where to start investing in stocks. Or do you have other ways to invest?

There are trading companies that have investing on the go. Companies like Acorns Investing have become quite popular among younger investors. 

Stocks You May Own When You Invest

There are different ways to invest besides learning where to start investing in stocks. Whether or not you invest in the below assets directly or through a pooled structure – think mutual, index, exchange, or hedge funds – there are five types of assets you may likely own in your lifetime:

  1. Common Stocks – A common stock is a security representing ownership in a corporation. Hence, when you invest in a stock, you acquire an ownership stake in an actual operating business. With this comes your share of the net earnings and resulting dividends. Make it a point for those unfamiliar with dividends to read up on them. Warren Buffett is earning $6,731 in dividend income per minute this quarter. Typically, stocks have and do have the highest returns of all asset classes. I suggest you find stocks that pay high dividends and invest in them. You won’t be Buffett rich, but we all need to start somewhere.
  2. Preferred Stocks – Preferred stock is a type that straddles the line between stocks and bonds. Technically, they are equity securities but share many characteristics with debt instruments and often pay higher dividends. Further to this, preferred shareholders have priority over common stockholders when it comes to dividends. And like those who own common stocks, they do not have voting rights. But, they do have priority over common stockholders in the event of a liquidation.
Where to Start Investing in Stocks?

Other Assets to Own

  1. Bonds – A bond is a loan between an investor and a corporation. When companies need to raise money, one way to do it is through issuing bonds. As the investor, you agree to give a certain amount of money over a specific time frame in exchange for interest payments. Once the loan reaches maturity, it is repaid to you as the investor (check out a list of the top brokerage firms).
  2. The Money Market – When you trade in short-term debt investments, you are trading in the money market. Money markets are highly liquid investments that involve trades either on the wholesale or retail level. On a personal level, you can participate in the money market by buying municipal notes, short-term certificates of deposits (CDs), or U.S. Treasury bills. In any case, the money market has low risk and high liquidity.
  3. Real Estate Investment Trusts (REITs) – REITs are companies that own, operate or finance income-producing properties. They can generate a steady income stream for investors – think upwards of 90% of earnings paid to shareholders. A bonus with REITs is most are publicly traded like stocks, making them highly liquid—unlike most real estate investments. 
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Forms to Get Your Hands on

Did you know that public companies are legally required to send annual reports to shareholders and file more detailed financial information on Form 10-K with the Securities and Exchange Commission? So, before you run out and start investing in stocks, step back and gather this information. This couldn’t be truer if the hot tip came from your brother-in-law or your broke friend – no explanation is necessary here.  

Below are the five documents you need to get your hands on that will provide you with everything you need to know:

  1. Form 10-K – I’m not alone; in my opinion, this is the most important thing you will ever read. Form 10-K provides everything you want or need to know about a company’s financials. In short, it will have a comprehensive breakdown of the company’s financial results, assets like cash and inventory, liabilities like debt and accounts payable, and other essential things to know, like executive compensation and risk factors. And they’re audited by an approved accountancy firm, giving some measure of reliability to the information.
  2. Form 10-Q is simply the quarterly version of Form 10-K; however, it typically contains fewer details, and the financial statements are generally unaudited. Form 10-Q is essential for investors because it compares a company’s previous financial quarter to its current financial quarter. Ultimately, it will help the investor determine if they should invest in the company’s stock or other securities (check out a list of free trading brokers).

Documents

  1. Proxy Statement – Often glazed over by investors, the proxy statement contains enormous amounts of vital information about a company. If you take the time to read it, you’ll glean information on the Board of Directors, who makes what, board elections, voting rights, and shareholder proposals. The combined information is handy when it comes to electing the board members. Is the CEO trying to put competent and knowledgeable individuals in place to act as a check against unethical practices? Or are the board members just trying to collect a paycheck dressed in fancy suits?
  2. Annual report – The annual report typically contains an overview of performance and prospects by the chief executive, financial data, results of a company’s operations, information on market conditions, new product plans, and research and development activities. As a (potential) investor, you will want to look for evidence of sound management and see whether sales are leveling off or the company has taken on too much debt. Better yet, is the company operating in a market with growth opportunities? Unfortunately, not all annual reports are created equally. However, the annual report written by Warren Buffet is touted to be one of the best in the industry. Luckily, we can download a copy of their annual report for free from the Berkshire Hathaway website. 
  3. Third-Party Research Provider – They say the devil is in the details, and you want the details – five to ten years back, to be exact. Several research firms will provide information on companies for a fee or course. A few I can think of off the top of my head are The ValueLine Investment Survey, Moody’s, and Morningstar. It would be best to do your research (see steps 1-4), but it’s good to have a third party back up your investment decisions (step 5). 

Three Financial Statements You Need

You finally got your hands on all the documents listed above. Before deciding to invest in stock in any company, you must examine the following three financial statements carefully:

  1. The income statement
  2. The balance sheet
  3. The cash flow statement

All three financial statements work in tandem and reinforce one another. The same is also true when baking a cake, for example. If you use only three of the four ingredients necessary and decide to forgo the sugar, your end product will most likely taste like a piece of cardboard.

As an investor, you cannot study the financial statements in isolation. You’re only baking part of the cake by only having part of the story. You’ll easily make a costly decision by investing in the wrong stock and be left with a dry, cardboard taste in your mouth. 

How Do I Start Investing With Little Money?

How do you start investing with little money? There are several ways that you can do it. It’s best to start with at least $500 and open a brokerage account. You could invest in mutual funds, do minor day trading up to 3 times per week or even trade options. Credit spreads are a good investing strategy if you have little money.

Final Thoughts: Where to Start Investing in Stocks?

It’s your hard-earned money and future on the line. The more you understand what it is you’re doing, the less likely you’ll be to make poor decisions based on what other people are saying.

G.I. Joe said it best: Knowing is half the battle. So if you want to be in the know, join us today. We’ll help you understand the ins and outs of the markets. 

If you need more help, take our online trading courses.

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