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How To Invest In Stocks For Beginners

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Once you’ve built your portfolio, you can also reinvest any earnings or dividends to help generate growth over time. Alyssa Powell/Insider

Our experts answer readers’ investment questions and write unbiased product reviews (here’s how we assess investment products). Non-client paid promotion: In some cases, we receive a commission from our partners. Our opinions are always our own.

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Looking to maximize your money and beat cost inflation? You want to invest in the stock market to get a higher return than your average savings account. But learning how to invest in stocks can be daunting for someone just starting out.

When you invest in stocks, you are buying a share of a company. They are usually part of the ownership in a company that can pay off if it is successful. There are different ways to invest and use your money. But there’s a lot to know before you start investing in stocks.

It’s important to know what your main goals are and why you want to start investing in the first place. Knowing this will help you set clear goals to work towards. This is an important first step to take when you are looking to create an investment strategy later on.

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If you are unsure of your goals, first review your financial situation, such as how much you owe, your after-tax income, and expected retirement goal date. Knowing when you plan to retire can inform you of your overall time horizon — or how long you plan to hold your investments to reach your financial goal.

Based on that information, you can start figuring out your investment goals. Do you want to invest for the short or long term? Are you saving for a down payment on a house? Or are you trying to build your nest egg for retirement? All of these situations will affect how much — and how aggressively — you invest.

Finally, investing, like life, is inherently risky and you can lose money just as easily as you can make it. For your financial and mental well-being, you’ll want to consider your risk appetite. This is commonly referred to as “risk tolerance” or how much risk you can reasonably accept given your financial situation and feelings about risk.

Quick Tip: You can take the investment risk tolerance test created by Rutgers to see where you stand and help inform your asset allocation.

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Once you’ve set some solid goals, it’s time to review your budget. Here are some things to consider:

One last thing to consider: when you expect to retire. For example, if you have 30 years to save for retirement, you can use a retirement calculator to assess how much you may need and how much you should save each month. When setting a budget, make sure you can afford it and that it helps you reach your goals.

Now is the time to start researching what to invest in. There are different ways to invest in the stock market and there is a lot to know so doing your research is well worth your time.

Stocks are a good option to consider if you want to invest in specific companies. Just remember that you should look at the company itself and how it performs over time:

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“If you’re going to pick a stock, look at [the company’s] financial statements and pick the stock based on the “bucket” you’re trying to fill in your portfolio. For example, are you looking for a dividend stock? Look at the dividend history. Are you looking for a growth stock? Look at the earnings per share: Is it showing consistent growth? [Consider] how these indicators measure up against [its] peer group,” says Amy Irvine, a CFP® professional at Rooted Planning Group.

So you want to take steps to look at your income and expense balances and make sure you hit the right bucket — which refers to the grouping of related assets or categories — for your investment needs. Investing in small-cap, mid-cap, or large-cap stocks, for example, is a way to invest in different sizes of companies with different market capitalizations and levels of risk.

If you’re looking to go the DIY route or want the option of having your securities professionally managed, you might consider ETFs, mutual funds, or index funds:

Quick tip: Wondering how much certain funds will cost you? You can use FINRA’s Fund Analyzer tool to help you analyze and compare the costs of owning funds.

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You want to become familiar with the different types of investment vehicles and understand the risks and rewards of each type of security. For example, stocks can be profitable but also very risky. As we mentioned before, mutual funds are actively managed, whereas index-based ETFs and index funds are passively managed.

This is important to remember because your costs and responsibilities vary depending on an active versus passive approach. Mutual funds are professionally managed and may have higher fees. With ETFs and index funds, you can buy them on their own and may have lower fees. Having a diverse portfolio can help you prepare for risk and not put all your eggs in one basket.

“You can choose to invest in individual stocks, a stock mutual fund, or an ETF. ETFs are a bit like mutual funds in that they invest in many stocks, but trade more like an individual stock,” explains Kenny Senour, CFP® professional in Millennial Wealth Management. “For example, let’s say you open a brokerage account with $1,000. You can use that money to buy a certain number of shares in ABC Company, the underlying price of which changes while the stock market is open. Or you can choose to invest it in a stock mutual fund, which invests in many different stocks and is priced at the close of each market at the end of the day.”

Quick tip: Building a diversified portfolio with individual stocks can take time, especially for people just starting out. That’s why experts recommend novice investors focus on mutual funds, index funds, or ETFs, which give you a large selection of stocks at once.

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Fund your first taxable investment account with at least $500 in the first 30 days of account opening and get a $50 bonus.

Wealthfront is one of the best robo-advisor options if you’re looking for low-cost automated portfolio management, and one of the best socially responsible investing apps for features like tax-loss harvesting, US direct indexing, and crypto trusts .

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The main things to consider when determining your investment strategy are your time horizon, your financial goals, risk tolerance, tax bracket, and your time limits. Based on this information, there are two main investment strategies.

How To Invest In Stocks For Beginners

Quick Tip: Be aware of any fees or related costs when investing. Fees can save on your investments, so compare costs and fees.

After choosing your investment strategy, you’ll want to choose an investing account that will help you get started. Decide if you want to do it yourself or hire a professional to help.

When considering active versus passive investing and whether you should DIY it or hire a professional, you want to consider a few factors. See total fees, the time commitment involved and any account minimums.

The easiest way for many people to get started investing is to use their employer-sponsored 401(k). Talk to your employer about starting and see if they will

How To Invest In Stocks For Beginners: A Comprehensive Guide

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