Anyone can start investing these days without having to get up from their couch. Mobile apps and services such as Robinhood, WeBull, M1 Finance, Drive Wealth, and many more, offer commission-free stock trades and access to fractional share investing. It is easy and convenient but how do you start investing?
Due Diligence is Paramount
Before even spending a single cent on a company, you need to look at their balance sheet, management, growth opportunities, and have a good understanding of the businesses. There will be a lot of terms that may be unfamiliar to you but do not allow yourself to feel overwhelmed. It takes a while to learn how to read a balance sheet but there are also good online learning resources.
You may be tempted to get into day trading. Keep in mind that day trading is a whole different type of investing that is close to gambling. It is much safer to stick with profitable companies that have a proven track record of doing well even during difficult economic times such as Apple, Coca Cola, Microsoft, PepsiCo, McDonald’s, and many more.
Decide What Type of Investor You Are
Even day traders are considered investors but of a different kind. You need to know how much risk you are willing to take with your investment. Value investors buy shares in companies that they understand and plan to keep their position for many years to come. When they require liquidity, they sell some of their assets.
A different kind of investing is dividend growth investing. This type of investment strategy relies on the income generated by their stocks. For each stock they own, they get paid monthly or quarterly by the company they own a part of. Stocks of such companies have very slow growth. The advantage is that you can still match or beat the market and you can live off dividends without ever selling your stocks.
The Easy Way
The easiest way to start investing is to put your money into an index fund. Index funds can be seen as a bag filled with different stocks and you get to buy piece ownership in a piece of that bag. This means that you own a small fraction of all the companies in that index fund. These funds are usually safe and, for example, the S&P 500 had over the past 90 years and average yearly growth of 9.8%. If you do not like spending too much time researching individual stocks, investing in index funds may prove to be the better choice for you.