Investing in the stock market is a very smart way to grow your wealth. Many people invest in the stock market either actively or passively. So how do you start investing in the stock market if you do not have a Finance degree? Here are some tips for you to easily understand how to start investing in the Stock Market.
Understand Investing Types
First thing first, you need to understand what are the investment types. There are many investment instruments available to pick. Find out what are Stocks, Bonds, Treasury notes, Municipal bonds, Mutual funds, etc. Each investment instrument required a different investment style. Experienced investor use strategy combining many investment instruments, but I suggest to start, you should start with only one at a time.
From my personal experience, I feel Mutual funds are the easiest way to start with. Mutual funds are created by professional managers and require very less knowledge to start with. This will allow you to enter the market without taking any huge risk.
Understand How Do You Want to Invest
Now that you have chosen your investment instrument, let’s decide on how you want to invest. You can invest aggressively, actively or passively. When you choose certain instruments it is more passive while certain instruments meant for more active investing. For example, if you are buying a stock for the long term, mutual funds and Treasury notes, they are long term investments. On the other hand, if you are investing in stock to take advantage of volatility, it is more active. Investing in Options and Futures are also some aggressive investing.
Identify Your Budget for Investing
Identifying your budget is to find out how will you fund your account and what will be the frequency. Some investor funds their account on a frequent basis while some can not. It all depends on whether you have such extra money to invest. It is a general understanding that one should invest in the stock market only what he or she is willing to lose. When you invest there is always a chance it will go to zero. So never risk an amount that you can not bear to lose.
Open an Investment Account
Opening an investment account can be a tedious one. You need to understand the different features of various brokerage account and choose one that suits the best for your investing pattern. You need to look if the brokerage is fast, accurate and place your trades, orders in a timely manner. In 2019 there was a big revolution in the brokerage industry and most brokerages reduced or removed fees they were charging. Here are some top brokerages I am using.
- TD Ameritrade
- Etrade
- Tasty Trades
- Trade Stations
- Interactive Brokers
I would not recommend any free brokerages like Robinhood or Webull. There were several issues with Robinhood in 2019 when their servers were not taking or placing any orders causing many investors to lose big.
Funding and Investing
Once you open your brokerage account, the next step is to connect your bank account and transfer the money. They have various options such as Wire transfer or ACH to facilitate easy and fast connections. Once your account is connected and transferred money, you can unlink your bank account if you want.
What’s Next?
As you are ready with your account and funded, it is time to explore the platform. Find out technicality in placing orders and get yourself familiar with the tools available. This will assure when you place an order, you get no accidents.