The stock market can often be an intimidating subject, as many people believe they don't know or have enough money to invest. And while individual circumstances will vary, trading on the stock market can be a fairly simple and profitable experience.
The stock market, which is actually made up of several exchanges like the Nasdaq and New York Stock Exchange, is where anyone can buy or sell stocks and own a piece of a public company. Essentially, it's a way for you to buy into a business that you believe is making smart decisions and that you want to support.
Although there are many ways to jump into the stock market, the following is a simple breakdown of a few ways to start investing. The following content, though, should not be considered an investment strategy or advice. Only you can determine what is best for you financially after research and careful consideration.
If you don't have a strategy going into investing, it's probably not the right time to start. You can lose money real quick if you haphazardly jump into the stock market. With that being said, you can also see nice monetary gains with a proper strategy.
If you're looking to set up your future retirement, then a long-term strategy can be a great (and generally safe) approach to investing. Buying stocks in established companies that have a history of long-term growth will generally do the trick. Basically, set it and forget it.
But if you're looking for a short-term strategy — maybe you want to save up for a new car — then a more aggressive approach can be beneficial. An aggressive strategy — one in which you buy and sell stocks at a quicker pace — can be a little more risky but can also be profitable if done correctly.
While either approach can be effective, it's best to stick to your individual strategy and not get caught up in what a friend, neighbor or someone on the bus says is a good strategy. Have a set time to re-evaluate your strategy and make sure everything is tracking well. Every stock will see highs and lows, but as long as there is an upward trajectory, you're likely in a good position.
You don't have to be on the floor of the NYSE to jump into the stock market. You do, however, need to find a brokerage firm where you can buy and sell stocks. These can range from places like Fidelity, E-Trade or Charles Schwab, or app-based brokerages like Robinhood or Stockpile, where everything is handled via a smartphone.
Each brokerage firm has their pros and cons, and you should look into a few before investing to determine your best options. Most firms will charge a trade commission — a price the brokerage gets for every transaction — while others, like Robinhood, have no trading commission. That means you buy a stock for the price it's trading for without any additional costs.
Some brokerages require you to have a minimum amount in your portfolio before you can start trading, while others have no such requirement and let you trade immediately.
Once you have your banking account linked to your brokerage firm, you're free to starting buying stock. It's now time to do a lot of research on the company or companies you'd like to invest in. For beginning investors, a good place to start is to look at the brands or companies you're passionate about.
Each stock will have a share price — the cost to buy one share in the company — and will be the first determining factor into whether you invest in a company. Companies like Amazon (AMZN) require you to pay more than $1,500 for one share, while companies like Apple (APPL) are less than $200. There are many factors that go into the share price for a company, and you can learn more about that at Investopedia.
After doing a fair amount of research — looking at the trends, historical charts, and company financials like the 10-K — you're ready to buy. Each brokerage will be different, but in general, you just search for a company's ticker — a shortened form of the company name and identifying symbol on one of the exchanges — and click "buy."
Most brokerages will allow you to buy as little as one share or hundreds at the same time; however, others may allow you to buy a fraction of a share.
One of the benefits of investing in the stock market is the compound interest on your money. Instead of sitting there in a savings account where you make a fraction of a percentage, your money can make interest on interest, meaning you have a faster growth potential.
Once you've invested into a company, you can make money by the share price going up. As mentioned above, there are several factors that lead to whether a share price goes up or down, but as long as the share price is going up, you're making money.
At any point, you can sell one or all shares for the current price and cash out, thus making a profit on your original investment if it's higher than what you bought it at. However, you will be required to pay taxes on any increases you make, so be mindful of that when determining your investment strategy.
There are also some companies that offer periodic dividends, or cash-back opportunities for investing in their company. For example, Apple recently paid out $0.73 per share to its investors, which can then be used to cash out or to reinvest in the stock market.