Investing in the stock market is something millions of Americans do. According to Gallup, 61% of U.S. adults attest to owning stocks in 2023. But for a large chunk of people, the mere thought of investing is intimidating and off-putting. People tend to associate it with high risk and the need for substantial funds to even get started. Neither of these myths needs to be true, it’s all about learning the basics of investing in the stock market.
Here’s a beginner’s guide to investing, taking a close look at how you can get started on your wealth-building journey.
What Are Your Financial Goals – Long and Short Term?
Before heading down the rabbit hole of investments, it’s a good idea to identify what your financial goals are. Think about your long- and short-term goals. This is important as it will help guide you in picking the “right” investments for your needs and lifestyle. Generally speaking, long-term investments grow slowly over time and tend to carry less risk overall, whereas short-term investments can sometimes yield higher returns but also higher risks.
An example of a higher-risk investment is growth stocks. Typically they have higher returns, but they are often higher risk. Financial experts often suggest you don’t rely on growth stocks, but they can be a part of your larger financial portfolio. You can learn about more than a dozen high-growth stocks via the link and familiarize yourself with how growth stocks work.
How Much Risk Are You Willing to Take?
This begs the question of how much risk you’re willing to take. What do you consider too risky? It’s okay and probably necessary for you to step outside your comfort zone but that doesn’t mean you need to invest in the highest-risk options that may be better for seasoned pros with plenty of knowledge and experience with the stock market.
How Much Money Do You Want to Invest?
As a beginner investor, it’s also important to set a budget of how much you are willing to invest. Go into the process with the mindset that you aren’t guaranteed to get a return, and you could even lose that investment you make. So what is a dollar amount that you’re okay with potentially losing?
You don’t have to feel boxed in by the budget as time goes on. You’ll become more comfortable with investing and what makes sense for you, so at that point you can invest more money. Starting small helps to keep things more manageable and less intimidating.
Don't Wait for the Perfect Market Conditions
A big mistake that beginner investors often make is to wait on the sidelines looking for the "perfect" conditions to jump in. You could be waiting an awful long time and miss out on some great opportunities. The market is never perfect, but that doesn’t mean it’s bad either.
The Stock Market Can Be Volatile
Finally, you need to be honest with yourself when it comes to the stock market. It can be extremely volatile at times and downturns can come out of seemingly nowhere. The best way to insulate yourself from big losses is to diversify your portfolio. This ensures that just because one stock crashes, doesn't mean all your investments are in the same boat.
On the flip side, be careful not to spread yourself too thin as that will be a lot of stocks to keep track of.
Building Your Wealth through Smart Choices
So if you’re already thinking ahead to your financial future and retirement, investing can be a smart choice to make. It’s about setting financial goals and brushing up on the basics so that you feel confident enough to make your first investment.