For a lot of people, the thought of investing for the first time is scary. After all, it seems like a complicated world, with a lot of technical jargon and acronyms thrown around, gate-kept by men in three-piece suits.
But investing in the stock market doesn’t have to be complicated or scary. You can learn how to build an investment portfolio that perfectly fits your life and financial situation, manage your own investments with confidence, and be your own best financial advisor.
And today, I’m going to teach you exactly how to do that. Welcome to investing in the stock market for beginners!
I’ve taught thousands of women who didn’t think they would ever be able to invest how to successfully build wealth through the stock market, and today, I’m going to show you how you can in 8 easy steps.
How to Start Investing in the Stock Market for Beginners
1) Build a solid financial foundation
You know how there are some classes in college that you can’t take until you’ve completed the pre-reqs?
Prerequisites create a solid foundation of knowledge so you can ace the harder classes.
Well, there are certain pre-reqs you need to complete before you start investing so that you can successfully build wealth. And here at Dow Janes University, we’ve created our own catalog of everything you need to complete before you start investing. We call it our Wealth-Building Roadmap; let me break it down for you.
- Spend less than you make every month. This is the foundation of financial wellness. If you’re spending more than you make, then you’ll never get ahead financially.
- Pay off high-interest rate debt. This is any debt with an interest rate above 7%. On average, stocks have an interest rate of 8-10%. So if you have debt with an interest rate above that, you’ll never be able to make money on your investments because you’ll always owe more than you make.
- Build an emergency fund. This is to financially protect yourself in the event of an emergency. You don’t want to have to pull money from your investments – and potentially lose money – in case your car breaks down or you get laid off. If you don’t have an emergency fund, start by saving $1,000, then build up until you have enough to cover 3-6 months of expenses.
- Save for retirement. Saving for retirement is all about building up your savings so that once you stop earning income, you still have money to live off of. In this step, you want to max out your retirement accounts and put money away for future you.
Once you’ve finished those 4 steps, you’re ready to invest!
2) Choose how you want to invest
Investing is more widely available now than ever before…and you have more options for investing than any other time in history.
Here are the three broad categories you have when it comes to choosing how to invest:
- Hiring a Professional
- This is when you hire someone to manage your investments for you - like a financial advisor. This is the most hands-off option, it’s also the most expensive option. Having a financial advisor manage your money can cost you hundreds of thousands of dollars over your lifetime, and they often aren’t going to do a better job than you could by just investing in Index Funds (which we’ll talk about later!). Also, most financial advisors won’t work with you unless you have at least $100,000 to invest. So suit yourself, but this is not the option I would recommend.
- A robo-advisor is a digital platform that provides automated, algorithm-driven financial planning and investment services with little to no human supervision. When you invest with a Robo-Advisor, you make a few decisions - sharing your age, risk tolerance, etc. and the robot invests your money for you, in exchange for a fee - usually of about .25% of your assets (Which, if you’re investing $1,000, is $2.50 per year)
- Two things to note: if the robo-advisor charges a flat fee instead of a %, do the math! For example, if they charge $5 per month and you’re only investing $1,000, then you’re paying a 6% fee!! There are plenty of companies that offer this service for a fee of .25%, so shop around and compare the fees before you choose where you’re going to invest.
- The upside of using a robo-advisor is you don’t need to manage your investments yourself and it’s a pretty simple start-up process.
- The downside of using a robo-advisor is that you have no control over how your money is being invested. So if you care about not investing in fossil fuels, or not investing in tobacco companies, you likely won’t be able to control for this.
- As the name implies, this is when you manage your investments yourself. This may sound daunting, but it’s not as difficult as it seems. This is what we teach our members how to do in the Million Dollar Year. Why do we do this if robo-advisors are so prevalent and simple? Because when you know how to manage your money yourself, you get full control over your investments, and we’ve seen how when women know how to manage their own investments, their confidence skyrockets.
That’s what this article is about -- it’s teaching you how to manage your own investments so that you don’t have to pay any fees to advisors or robots, you get to build your own portfolio, and you get the confidence of knowing you can do it on your own!
3) Open an investment account
An investment account houses the money you use to invest. It’s like a savings account you can invest from.
As you’re picking a brokerage, here are a few things to keep in mind:
- Good customer service: If you’re having trouble with your account, you want to be able to get a hold of someone to help you fix it ASAP.
- Low fees (also called “expense ratios”): Don’t pay more than .3% in fees for the funds you’re investing in.
- Easy interface: The website should be easy to navigate and find what you need
If you’re investing in the US, some popular brokerages include:
- Charles Schwab
- TD Ameritrade
If you’re located in Canada, you can open an account with Questrade or Vanguard Canada – in fact, I made a step-by-step video on how to invest in Vanguard Canada, which you can watch below.
If you can’t decide on a brokerage, Vanguard and TD Ameritrade are both great options. If you want to invest in target date funds (which I’ll cover in a minute), then Vanguard has the lowest fees.
4) Transfer money into your account
Once you open your brokerage account, it’s time to fund the account by transferring money into it from your checking or savings account. All you have to do is log into your new brokerage account online and search for an option to fund your account or transfer assets.
At this point, you’re probably wondering, Wait…how much should I invest?
The answer depends on your financial situation and how you plan to invest (which I’ll explain more in a minute).
The short answer is that you can invest with as little as $100, but you’ll have more options if you start with $1,000.
That said, remember that the amount of money you invest isn’t as important as when you start investing. The sooner you start investing, the more money you make, even if you don’t invest much to start with.
5) Decide how much to invest in stocks vs bonds
The fancy investment term for this is “portfolio allocation” or “asset allocation.”
The percentage of stocks vs bonds you want to invest in will change depending on your age and/or time horizon.
Stocks are considered a riskier investment but often offer higher returns, whereas bonds have a more guaranteed return but typically lower returns.
So, if you’re younger and have many years to go before you retire, you’ll want to invest more heavily in stocks, because you have time to ride the highs and lows of the market. But as you get closer to retirement age, you want a higher percentage of bonds to give your investment portfolio more stability.
If you’re investing for retirement, then you can use the rule of 130: take 130 and subtract your age – that’s the percentage you should invest in stocks.
So, if you’re 30 and saving for retirement, you can put 100% of your investments in stocks. If you’re 60, put 70% of your investments in stocks.
Now, if you’re investing for your kids’ college education – which is money you’ll need to use in about 10 years – then you may want to choose a more conservative allocation, like 70% stocks and 30% bonds.
If you’re only investing for 5-7 years, you may opt for a portfolio that’s 65% stocks and 35% bonds.
If you’re investing for less than 5 years, don’t invest in stocks. Instead, keep your savings in a high yield savings account or bonds.
6) Choose your investments
Now that you’ve decided your target portfolio allocation, it’s time to build it!
This may surprise you, but I don’t recommend investing in single stocks. When you put your money into a single stock, you’re tying all of your money into the success of that company.
Instead, you can invest using target date funds, which are pre-formed funds with a mix of stocks and bonds that is based on your age and automatically changes over time. This is the easiest way to get the percentage you want and you can truly set it and forget it until retirement age, but you don’t have much control over your investments with this option.
Or you can invest in exchange-traded funds (ETFs), which give you more control over your investments, but you need to take time to select the ETFs you want to invest in.
Because target date funds and ETFs are bundles of different stocks, they aren’t as risky as single stocks.
If you’re investing in a target date fund, all you have to do is Google “target date fund” and the year you expect to retire. So, if you’re planning to retire in 2050, you’d type in “target date 2050” and let Google work its magic. Just find a fund that doesn’t charge more than .15% in fees, make your investment, and rest easy knowing that the fund will allocate your investment accordingly.
Or you can create a portfolio based on diverse ETFs. For example, let’s say you have $1,000 to invest. Maybe you invest $800 in a total stock market ETF like VTI, $100 in a total bond ETF like BND, and $100 in a gold share ETF like GLD.
Now, it’s time for the easiest part – actually click the buttons and invest your money!
8) Manage your investments
Managing investments is pretty easy. Here are my best tips for managing your investments:
- Buy and hold. Plan to hold onto your investments for at least five years…ideally more.
- Don’t check your investments too often. Like I said, you need to hold onto your investments. The stock market is a roller coaster and you don’t want to be tempted to sell when the market is low. I don’t recommend checking your investments more than once a quarter.
- Continue to put more money into investing and set up auto-investing so this happens automatically each month.
- Rebalance your portfolio each year if you invested in ETFs. Once a year, use the 130 rule to make sure you’re invested in the ideal percentage of stocks and bonds for your age. Buy or sell as necessary to achieve your target allocation
Want the secrets to successful investing?
Like I mentioned before, if you want to learn more about how to make money from investments, be sure to check out our free masterclass, Think Like an Investor! In it, Laurie-Anne and I will give you the need-to-know secrets of winning investment strategy – and how to avoid the investment mistake that cost Laurie-Anne $15,000.
Above all, remember the most important thing is to just start as early as possible. So, if you need to, scroll back up and follow every step so that you can start building a life of financial security and abundance today.
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