Let’s face it: stock market investing can be scary, especially if you’re a beginner. But if you do your research well, then you’ll step into it much more confidently and ultimately make better investment decisions.
How to start investing in the stock market is a question asked by many a beginner. A good investment strategy involves part research and part skill. You can develop the skills to invest wisely by researching the stock market and defining your stock investment goals and strategy.
Here’s what you need to know to start investing in the stock market:
Match your Investment Goals to your Investment Strategy. Before investing, figure out if you want to invest for long term such as retirement or short term to generate a steady source of income (dividends). If retirement is your reason, then you should look into setting up an IRA account and if dividends are your reason then you can start with a cash account.
Have your Personal Financial Documentation Ready. The typical items you will need before you can open an account with a broker include proof of identity such as your driver’s license, your social security number, a bank statement showing your net worth (assets minus liabilities) and a statement showing your net income (income minus expenses). Ask your banker to prepare these for you and tell them you need it for investing purposes.
How to Set Up an Investment Account. Before you can learn how to start investing in the stock market, you must first set up a trading account. You can go to a brokerage firm and open an account with them. Provide them with the financial information that you gathered above. A full service brokerage firm will handle most of the investment decisions for you, such as where to invest, how much risk to assume, etc and give you detailed reports and information to follow up on. If you want to learn and do-it-yourself, then you will have to first research the stock market in detail before you start investing. So decide if your investment approach will be DIY or hands off.
Do your Stock and Company Research. If you’ve decided to do all your investing yourself, it’s imperative that you do your research before beginning. You must know how much risk you are willing to assume, how to evaluate companies and their economic health and growth prospects and how to read financial tables. You can learn it all today on the internet since there are many great sites to help you such as Yahoo Finance and Forbe’s Investopedia.
Start by Investing in a Relatively Safe Index. The three most popular American stock market indexes are the Dow Jones Industrial Average, the NASDAQ Composite and the S&P 500. These indexes are a popular gauge of how the stock market is generally doing. Investing in them means that you’re investing in companies which are stable and sound enough to be on the index and as such provide a stable rate of return. Popular companies on these indexes include McDonalds, Coca-Cola, Microsoft, Exxon and more.
Monitor your Stock Portfolio. How else will you know whether to stay with your current stocks or sell them or buy more? Look at the stock tables in your daily newspaper or favorite financial website and figure out which companies are doing well and which way the economy appears to be heading. Listen to financial analysts but follow your gut instincts too.
Before you can learn how to start investing in the stock market, you should be cautious and take it slow and steady. But the more research you do, your confidence will build and you will start to get better at picking the winners in the stock market!