Whether you are looking for a place to passively park your money and wait for it to grow or you have shining dreams of day trader glory, you can get started with just a little bit of money and expertise.
Are you interested in getting involved in the stock market? Do you feel like you have no idea where to start? If so, you are like plenty of other people before they embark on this exciting and potentially lucrative pastime. Whether you are looking for a place to passively park your money and wait for it to grow or you have shining dreams of day trader glory, you can get started with just a little bit of money and expertise.
Choose your approach
If you have a retirement account, you might already be an investor in the stock market. And you may want to continue being this type of investor, one who is largely hands-off. Many people will tell you this is the best approach, and it's true that over the long run, an array of investments in the stock market will almost certainly increase in value even if there are fluctuations over a shorter period of time.
You can use digital tools for personal finance to monitor your growth over time.
However, you may also want to take a more hands-on approach. The first things you'll need to decide is if you want to manage your portfolio yourself or if you want someone else to do it for you. Neither of these is inherently better than the other. What's important is that you choose the approach that you know will work for you. Of course, you could also change over time. You might start out with more professional help and start doing more of the work yourself as you learn more.
Choose your account
It used to be that when you wanted to start investing, you went to a full-service broker who would work with you in developing a long-term financial plan and help you create the kind of portfolio that would be right for you based on a number of different factors. These types of professionals are still around, and you can still engage their services although they will cost more than online brokers. Online brokers mean that anyone with an internet connection can start investing today, even if you only have a little money. You'll need to decide whether you want to do it yourself or have a robo-advisor do it for you. The former will require you to research and learn as much as possible about investing. The latter will gather information about your goals and make choices for you.
Paper trading and DSPPs
Before you move forward, there are a few other options you might be interested in learning about. First, you may want to look into paper trading. This is essentially an opportunity to practice being in the market without actually spending any money. You can learn a lot by spending some time paper trading, and it may help you decide whether you want to manage things on your own or let a broker or robo-advisor do so. There is also something called a Direct Stock Purchase Plan that allows people to make a purchase directly from a company. These are usually blue-chip companies, and you generally must go through a third-party administrator. If there is a company you are interested in, you can talk to their investor relations department about a DSPP.
Day trading and penny stocks
Some people get involved in stocks in the first place because they have visions of getting rich as a day trader. Can you make a lot of money as a day trader? You absolutely can. The flip side of this is also that you can lose a lot of money, so you need to be prepared before you stride into this world. This is a high-risk, high-reward endeavor. To get started, you will need to have money that you can afford to lose. You should also have a good understanding of the market in addition to being able to read and analyze data and charts. You'll need to be disciplined. There are many different types of strategies you can use, such as high-frequency trading, which involves algorithms, or news-based trading, which involves watching current events and making trades based on them.
One potentially risky area that may interest some day traders is penny stocks. These are very low-priced stocks that offer a potential of a substantial return. However, the very volatility that can earn you a lot of money also means you could potentially lose a lot. Some of these are failing companies, but others are simply new and could do very well.
You can review a watch list that will list some of the best penny stocks to buy to have an idea where to start.
If, like most people, you aren't interested in day trading, you'll want to move ahead with either your broker, your robo-advisor, or your online account that you manage yourself. You can either buy individual stocks, or you can purchase exchange-traded funds and mutual funds. It's generally advisable to have a diverse portfolio, and this is easier if you choose mutual funds or exchange-traded funds. You can also build a diverse portfolio from individual shares, but you will probably spend more money doing so. However, with individual shares, there is more of a chance of a quick rise in value. You may be limited by what you initially have to spend. For example, mutual funds may require a minimum of $1000 or more, but you can purchase exchange-traded funds for much less, even as little as under $100.
Whatever your plan, you should take a look at your portfolio a few times a year and make sure it still reflects your goals.
How you select your investments will depend on many different factors, including your age, your goals and your tolerance for risk. The standard advice is that younger people can afford riskier investment than older people since there is more time for course correction, but there are 20-somethings who may temperamentally lean toward the more conservative choice and 50-somethings who might have an appetite for risk. The advice is generally to focus on the long term since this is usually the way value accumulates, slowly and steadily. However, you may decide you want to be more hands on, and whatever your plan, you should take a look at your portfolio a few times a year and make sure it still reflects your goals.