Are you looking for an investing for dummies guide? Then you are in the right place. If you are financially stable and are spending less than you make, you are in a good place to start investing in stocks.
How do you get started? That is what we are going to talk about today. Let’s get started.
Step 1: Cover Your Bases
If you are considering investing you need to make sure you have your financial ducks in a row.
The first thing is you need to make sure all your bills are up to date. If you are behind on anything you shouldn’t be thinking about this. Your main focus should be catching up.
The second thing is you should have an emergency fund already set up. This fund should be enough for you to be able to pay all your bills and feed you for a month in case you somehow get unemployed. Your goal is to have more than that, but as long as you have the minimum amount you are good to go.
The last thing you need is to not have any debts that have high-interest rates. An ideal number for this would be anything above 7%. This includes credit cards and personal loans.
If you have check marks in those categories, you are good to start investing.
Step 2: Figure Out Why You are Wanting To
I know this may seem like no brainer. The first thing you need to ask yourself is, “Why do you want to invest?” What’s your goal? Where do you hope to go with this?
The most common answer is “to make more money”. You need to ask yourself “Why do you want to make more money? What are you going to do with that money?” You need to be as honest and specific as possible.
You need to do this to define your goal. This goal will help you figure out a timeline for your investing. This will also help you figure out the amount of money you can risk.
One example of this would be the longer the timeline of your investment, the more short-term volatility you can accept. This means that you can deal with the market fluctuating up and down often. The longer the time frame the more money you will make. The stock market is always statistically higher over a 10 year period. This means you will yield a return.
Another example is this. The more time you have between meeting your goal and when you are wanting the cash in hand, the less important liquidity is. This means that you can wait longer to get your cash. Unlike real-estate which, stocks are pretty easy to sell. This means that when you meet your goal, it is easy to get your money.
When you define your “why”, you need to figure out the time frame that you will need the money. This also includes how fast you will need the money when you reach your goal. The last thing you need to do is to make sure you are ok with losing money on a short term basis. Remember, it’s all about the average return.
Step 3: Decide Where and What You Want to Invest In
Now that you have your goals set is time to figure out where to start your investing at. There are a few websites out there. Ameritrade is a good one. Once you find one you like it’s time for the next step.
Most of these places have a minimum deposit. Ameritrade is a $500 minimum. You should have a certain amount already saved up for this. Deposit your money and now you can start buying.
I would suggest doing some research before you start buying random stocks all over the place. Remember there are trends and certain stocks are better to buy at certain times. Keep in mind you want to keep your portfolio diversified. You’ll want to mix it up and add bonds, mutual funds, and some ETFs. It does nothing but add value. Your stocks may drop in value, but your other investments can increase in value at the same time!
Time goes by, and you have reached your goal for your timeline. It’s pretty simple. You sell what you want. The money goes back to your account. Then you transfer it back to your checking account. It’s pretty easy as you can see.
#4 Check On Tax-Advantages.
This is a huge thing. You can actually save money on your taxes by investing. This is mostly done through a 401k plan. Most businesses offer 401k retirement plans. If not you can find a brokerage firm and set one up. How does this work?
Let’s say you make $50,000 a year. You decide to invest 20% of your paycheck into this retirement fund. The amount of money you pay into the fund isn’t taxed. You end up paying $10,000 into the 401k fund, you are only getting taxed on $40,000. That’s not a bad deal.
If you are getting a 401k plan through your workplace, check and see if they have a match program. These are amazing. After a certain amount of money is invested, your company will end up matching what you put in. So if you are investing $1,000 a month, they will match that investment. You can’t really turn down free money, can you?
This also relates to Roth IRAs. The money accumulates in that account. If you invest $100,000, you may get $80,000 in returns. The beauty of this is when you retire and pull the money out, you are not taxed on any of that income.
Do some research about these investments. This can save you money through taxes as well as you are earning money on top of your investments. Not a bad thing to look into if you are playing the long investing game.
There you go. It’s easy to get started investing. Make sure you have enough money to get started. Make sure your bills are caught up. The largest thing to understand is the risk. If you can do all of these things, you will go far. I hope this helps you out. ‘Till next time!