So you want to invest in the stock market. You’ve read all about the risks, rewards, and reasons why putting your money in stocks and funds can help you in the long-term.
There’s only one problem: you don’t know where or how to start.
Fear not! We’ve taken it upon ourselves to put together this dead-simple guide on how to start investing for the very first time. Whether you’ve never invested before or are just starting to learn about finance, we’ll show you a few things you could invest in, how to invest in them, and why they might be right for you.
You just need the following:
- A bank account with money in it (duh).
- A brokerage account. We recommend Robinhood because it doesn’t charge you fees or commission. (You can read about how to use it here.)
- A sense of responsibility. We were going to make a joke here, but we’re talking about investing for the long-term (read: retirement), which means buying something and holding onto it for a while. You could always cash out of your investment all at once, but that could mean paying hefty taxes or losing money if your investments haven’t performed well recently.
Now that you’re ready to start investing, where should you start? Let’s take a look.
SPY or other index funds
Investors rarely agree with each other, but one piece of advice many investors give to new investors is to buy index funds like $SPY and $QQQ. These index funds follow the S&P 500 and Nasdaq indexes, respectively, and let investors own small portions of the hundreds of companies on those indexes. Since indexes historically increase over time (and have hit record highs as of recent), these stocks will likely gradually increase in value over time, too. They won’t make as much money as individual stocks would, but they involve less risk.
Companies on an index
The Dow Jones Industrial Average follows thirty leading American stocks. The S&P 500 follows 500 leading American stocks. These stocks were hand-picked by the managers of the index, and some have stayed on their respective indexes for decades, meaning they’re probably not going anywhere. You could, say, buy stock in Apple ($AAPL), Coca-Cola ($KO), and other popular stocks, as those companies are worth hundreds of billions of dollars and are in millions of investors’ portfolios. Just don’t put all your money in one stock. You always want to own multiple stocks in case one does poorly, so the rest will (hopefully) even things out.
Apps that invest for you
Instead of picking stocks, let services like Acorns and Stash invest for you. These apps let you invest whatever amount of money you want. They pick your risk tolerance (low risk? medium risk? high risk?) and choose the right investments for you based on preference. They’ll charge you low monthly fees just to use the service, but if you don’t want to do all that pesky research, it might be well worth the cost.
401ks or IRAs
If your company offers you a 401k, you should consider putting money into it. This will let you save for retirement, invest in the stock market with someone else’s help, and maybe even save on taxes for the year. If your company doesn’t offer a401k, consider opening an IRA or a Roth IRA, which offers similar retirement savings options.
Like Stash and Acorns, mutual funds let someone else invest for you. Unfortunately, they’re not as accessible as other investment options. Some mutual funds are exclusive and invite-only. Others are open to the public but require a large minimum investment to start. Mutual funds take fees off your investments regardless of your portfolio’s performance, so unless you’re investing a decent amount of money, they might not be the best option for you.
Before you get started, there are few more things you need to know: If you’re investing in stocks and funds, you don’t have to pay taxes on your investments until you sell them — and you only have to pay taxes if those investments make money. Also, there’s always the risk that stocks lose money. Those stocks could always go back up, or keep hemorrhaging money. If you’re uncomfortable with a stock’s performance over a long period of time and don’t want to own it anymore, consult other investors and consider selling that stock. You could always buy something else.
Now that you know where to start, what’s stopping you? Go on and start making smart investments!