How To Get Started in the stock market
When people initially invest in the stock market, they usually ask "how much money do I need to start investing in stocks" or "how much should I invest"?
These are actually very different questions because one asks about the minimum needed to start playing the stock market.
The other question is tailored to your personal savings and the amount you should allocate to stock investments.
Let's look at the first question of how much you need to start playing the market.
Most brokerages don't have a minimum to start an account, but you still need money to purchase stocks. And yes, you can buy penny stocks with very little money. However, if you have no experience in the stock market, I would recommend steering clear of risky penny stocks. They are that cheap for a reason. And you should not be playing the stock market if you see it as a gamble.
I would say $500 ~ $1000 is a good number to start, cause that would allow you to buy a few shares of some really good companies and begin trading.
As a rule of thumb: You need to be able to afford shares of that stock, diversify your portfolio and have enough profits after trading fees.
So let's explore this a little further. After you do proper research of the market, political climate, company background, etc. you may have found a few companies that interest you. Next, you need enough money to buy shares of that company.
Popular companies you often hear about like Tesla, Apple, Microsoft, Amazon range from $100 ~ $3000 a share. You will need to see if your budget is within the range of the company you want to purchase. But don't be worried about the share price. You make money off a percentage you invested, and not on the number of the share price.
Also, there are a few brokerages out there that allow investors to buy fractional shares of a company for as little as $5. So if you don't have $3100 to buy Amazon shares, you can buy a fraction of the company. I personally have not used it, so I would also read into the fine print of these services. Don't get robbed with more fees.
Diversification
You should have enough to comfortably diversify your portfolio.
It's ok to only start with a couple of companies when you are starting off to get your feet wet. But as you increase your knowledge and financial capability, your goal should be to increase to at least 10 positions.
Avoid piling your money into one single stock, unless you really believe in that company and have done all your due diligence. I do a lot of my research with Yahoo finance, Google, Investing.com, and vigtec.
The scoring system is quite a helpful reference. But always do your own research
I use Yahoo finance to briefly gather news, company updates, and any changes to politics and the economy. I then google the specific company to learn more as well as understand the financials. Investing.com provides good charts to look for trends.
Vigtec is my favorite, as it combines all of the above into one single app. When I'm traveling or more occupied, this app is my go-to resource. And what's unique about their features is they also provide their own technical analysis along with percentage ratings. So if you're a beginner, it's really easy to understand.
Protect your profits
This is a big topic that many people forget when they are making money. If you are starting small in your investments, those trading fees can really eat into your profits.
To make it easier, if you start with $100. You buy a single stock for $100 and immediately pay a $5 trading fee.
So immediately you lose $5.00 already.
Your stock rises 10% and goes up to $110, which pays you $10 if you sell. But then you have to pay another $5 trading fee.
So all your risks playing the market and gains went completely into trading fees. It's really hard trading with smaller amounts. Be sure to do your research on which brokerage to trade with and look into their fee structure. As your investment amount grows, the fees don't eat into it as much cause it could be charged $5 ~ $7 per trade or based on a small percentage.
The next question to tackle is, how much money you should invest in stocks.
Personally, I invest as much as I can because of the incredible power of compounding in the market place. Every dollar could multiple to more in the future.
HOWEVER, if you are starting off, you need to know what you are getting into and doing. I would recommend starting small, an amount that you are willing to lose. Think of it as tuition for education.
Here are a few tips I would strongly suggest to follow:
Invest what you can afford to lose. Do not invest where it will harm your financial future
Invest money you won't need in the next 5–10 years.
Don't invest to a point where you can't sleep well at night.
Do not be seduced by the "possible" amount you could make, cause markets do decline and have their ups and downs.
Anything can happen with an investment. Whether poor investing strategy, not knowledgable, or simply bad luck can cause you to lose all your money. Be patient, take out your emotions, and use your knowledge to make wise decisions.
Words of legendary investor Warren Buffet:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”
My suggestion for new investors is to “Just get started.”
The market is constantly evolving, which means you will be constantly learning. Always be knowledgeable of the company and their industry that you are investing in. Imagine you were to take over this company, could it run well on its own with the current product or service, management in place, financial backing available?
There’s a lot to learn about investing in the stock market and it’s good to experience some of those early lessons with less money at stake.
It's not so important how much money you put in today, it is more important how much you add over time.
For several reasons, steadily adding to your investments over time is likely to provide a huge boost to your long-term wealth.
Based on the knowledge and experience you have accumulated, do what works best for you, and start with what you are able to invest with today. And with time, add more money and positions with your proven strategy.
Comments