Despite what every finance pro and Wall Street-focused movie tells you, investing is surprisingly simple. There are no exams you need to take to become an investor. You don’t need to pass strict income or legal qualifications. Anyone with a bank account and an internet connection could start investing right now if they wanted to. That’s why it’s called a public market.
Yet investing without any knowledge of what you’re doing is a terrible idea. While you could just find a company you like and put money towards them, you need to know how to do that and why (or why not) you should. Otherwise, you might be setting your money ablaze without even knowing it.
That is why we compiled these five important steps to take before you start investing. Once you’ve completed these action items, you’ll be able to make safe, sound investments without worrying. With that in mind, let’s get started, shall we?
Ask yourself why you’re investing.
Do you want to make a quick buck and potentially double, if not triple your money? Do you want to find a safe stock that will guarantee you some sweet gains? If this sounds ideal, then investing isn’t for you. In the stock market, potentially making a quick buck requires investing in risky assets that could rob you blind. There’s also no such thing as guaranteed gains when investing in stocks, as no one can invest in the future. Investing requires taking calculated risks, but managing those risks for the potential of manageable gains that won’t clean you out.
Now, if you’re investing for retirement or to make a difference, that’s a different story. If you want the chance to make gains over a long period of time and not a day or two, then investing is right for you.
Save money and stop unnecessary spending.
You need money to invest in the stock market. If you spend all your money on unnecessary items, you won’t be able to invest. If you’re in any form of debt, you should probably avoid investing like the plague. That’s why you need to cut out the food deliveries, random subscription services, and anything else that costs way more than it’s worth. Look at what you regularly spend money on and find ways to cut back a bit. Remember: a dollar saved and invested now can be worth many dollars down the line.
Learn about investing. Like, all of it.
You can’t just buy a stock and hope for the best. You need to know how the market actually works, why certain sectors are performing the way they are, and how to follow hundreds of stocks by looking at one number. Fortunately, we’re here to help. To get a head start on your investment education, check out our intro to investing.
Avoid unnecessary fees like the plague.
Paying fees used to be a routine part of investing. Not anymore. Instead of paying ridiculous broker fees and commissions, find a broker/brokerage that offers low- or no-cost investing. Robinhood, for instance, doesn’t require you to pay fees or commissions on any transaction. Whatever money you save on fees is just extra money you can invest in the market. Also, avoid paying for unnecessary premium services like financial planners or advisors unless you can really afford it. These financial professionals not only sell you things you can buy on your own, but they might be incentivized to give you a middling deal for the sake of making their own profit.
Put some money in ETFs when you’re ready.
Buying stocks in popular companies like Apple ($AAPL) and Tesla ($TSLA) is cool, but they shouldn’t be your first investment. If you’re finally ready to invest, you should really consider spending your first $10,000 on index funds like the $SPY. These funds follow the market average and are relatively lower in risk than buying individual stocks. They historically increase over time, meaning the chances of them making money are pretty great.
If this sounds dull to you, you could always invest in the many exchange-traded funds on the market. These funds invest in entire industries instead of just one single stock, spreading your money out across multiple companies in one single purchase.
Now that you’ve taken these steps, you’ll be well on your way to making educated, calculated choices on the stock market. No, you won’t get rich overnight or lose all your money. You could make or lose some money, but that’s how the stock market works.
To learn more about the market, hit up our Investing 101 section and get familiar with more advanced concepts in investing.