Guide to Stock Investing For Beginners
Stock investing or making a stock investment does not require experience in the stock market. You don’t need to pick stocks on your own or take on excessive risk to invest in stocks. Here’s a basic starter guide to stock investing for beginners.
What you need to know about the stock market when you make your first stock investment is that stock prices fluctuate. Stocks trade on exchanges, and historically when held for the long term stocks have produced returns of about 10% a year. Over the shorter-term the market goes through cycles called bull markets (rising prices) and bear markets (falling prices).
Most of the time bull markets prevail and most investors make money. In bears markets the vast majority of investors lose money, as most stocks fall in value.
Investing for beginners should not be about trying to pick stocks that will outperform the stock market in general. Stock investing, especially investing for beginners, should be about making a stock investment without speculating and taking on heavy risk.
The simplest way to invest in stocks without speculating is to invest in investment funds: exchange traded funds (ETFs), and mutual funds. In both cases you make a stock investment by buying shares. You then own a small part of a large portfolio of stocks which is managed for you and all the other investors who own shares.
To invest in stocks through an ETF you’ll need a brokerage account. Stock mutual funds can be purchased in various ways: through an investment professional, in a 401k-type plan, in a brokerage account, or by dealing directly with a no-load fund company.
Unless you have an investment adviser you’ll need to pick your own funds to invest in. As a general guide to investing for beginners, I suggest you start investing with a major stock index fund.
For example, stock symbol SPY is an ETF that tracks a major stock index, the S&P 500 Index. Various mutual fund companies offer S&P 500 Index funds as well. In either case, they are a stock investment that tracks the performance of 500 of the largest stocks (large cap stocks) in America.
In good times in bull markets, you’ll make money. In bad times and bear markets such as in 2008, expect to lose money along with just about everyone else who decided to invest in stocks.
The good news about investing in a stock index fund that tracks the stock market: most of the time stocks go up in value. Plus, unlike people who pick stocks to beat the market, you don’t need to sweat the possibility that you chose poorly … resulting in larger than average losses.
Now that you know where to invest in stocks to participate in the stock market without undue risk, you’ll want to learn about investment strategy. Once you learn how to avoid major losses in bear markets, you’re way ahead of most investors.
If the average stock investment has made 10% a year over the long term (and it has), think of the possibilities if you really knew how to invest.