Learning how to invest in stocks can seem like a daunting challenge. But personally, I believe it’s well worth the effort. From a historical perspective, stocks (also known as equities) are one of the best investment vehicles as they have consistently achieved higher returns over other asset classes.
On average, the stock market rises by around 10% each year. And by investing capital into equities, I can put my money to work, reaping the benefits without having to do very much.
Becoming a successful investor is obviously, not as easy as some would claim. But getting started is simple enough. Let me explain.
Selecting a strategy
There are different investing strategies when it comes to the stock market. One of the first decisions to make is to pick one. The approach I like to take is directly selecting the businesses I want to own. But another option for those who aren’t particularly interested in having this responsibility is to invest in a fund.
Funds are essentially large pools of capital that thousands of investors help build. The money is then invested by a team of (hopefully) talented asset managers on behalf of the fund shareholders. Of course, this latter option isn’t free as these experts charge fees for their service.
Regardless of the approach an investor takes, being informed is essential for success in my experience. Beyond knowing exactly where my money ends up being put to work, it also provides me with an extra layer of confidence, especially during times of market volatility.
How to invest in stocks
After deciding the approach I wanted to take, the next step was to open a brokerage account. Brokerage firms act as a middleman and open up individual access to the markets. There are countless platforms available today, many of which offer commission-free trading like Robinhood. Each has its own advantages and disadvantages, so it’s worth spending some time finding out as much information as possible before making a decision.
Today, most brokerage firms allow individuals to open an account with no minimum deposit required. However, budgeting is still an essential process, I feel. Let me explain.
Historically, while certainly not as exciting, long-term investing horizons have a significantly higher average rate of return than trading. But this approach only works if the money stays invested. In my case, that can last for several years.
This is where the budgeting comes into place. The last thing I want to happen is to suddenly have to sell my shares because I run short on everyday cash. That’s why I only invest what I have to spare and what I can afford to lose. After all, the stock market is far from risk-free.
Getting started
Today investing has become more accessible and far less expensive. But the most challenging barrier in learning how to invest in stocks still remains. And that’s simply getting started.
The fear of loss can put many people off the idea of risking their capital in the markets. But the potential rewards make it a risk worth taking, in my opinion.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The Money Cog has published an investment report on Robinhood Markets Inc. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
