Investing your money in the stock market is one of the greatest ways to grow your money and achieve wealth. Investing in stocks puts your dollars to work, so that you are literally making money in your sleep.
I have an entire post on HOW to invest in stocks here. This post is more of a crash course on what investing in stocks really means and the basics of investing in stocks.
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The opinions expressed in the Professionally Peony are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.
Investing Basics
Investing in stocks can seem daunting, but it is actually very simple. Investing in stocks just means that you are investing in a single company.
For example, you can invest in Apple. When you invest in the Apple stock, you are buying a piece of that company (aka a “share” of that company).
When the company is doing well, your stock will grow in value. When the company is doing poorly, your stock will decrease in value.
Let’s say you buy $100 worth of Apple. The next day, Apple releases a new best-selling product. Your money will grow because Apple is doing well financially. Your money would increase to $200 (just hypothetically speaking).
Basically, you just made $100 without having to do anything.
On the other end, if Apple gets hit with a lawsuit, their profitability will go down. Thus, your stock will go down and you’ll lose money.
But don’t worry – the market moves like a wave. Stocks usually go up and down consistently over time. If you lose money today, you will most likely gain it back tomorrow.
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How Risky Should I Be?
It really depends on what investing objective you want to have. First, figure out which type of portfolio you want to have.
There are 5 different portfolio types:
- Conservative (lowest risk; suitable for people nearing retirement age or needing to withdraw money in less than 5 years)
- Moderately Conservative
- Moderate/Balanced
- Moderately Aggressive
- Aggressive (highest risk; suitable for younger investors planning on keeping their investments more than 10 years)
These portfolio types are for people planning on investing in more than just stocks.
An aggressive type of investor will invest in mostly equity (stocks and mutual funds).
A moderate portfolio would be a diverse blend of equity and fixed income. Conservative portfolios include mostly fixed income securities and cash.
The younger you are, the riskier you can be with your portfolio. This is because you have a broader investing horizon (aka, you have more years of investing ahead of you).
If you are getting ready for retirement, it is time to be safer with your money and choose a more conservative portfolio.
If you are investing short-term (less than 5 years), it is best to be on the safe side and invest your money moderately to conservatively.
If you are investing long-term (5 years or longer), you can afford bigger losses because you have more time to bring the money back up.
But, remember: This is completely your preference and whatever you are the most comfortable with!
What Stocks Should You Invest In?
REMEMBER: The best portfolios are DIVERSIFIED. Don’t invest all your money in one stock because if it crashes, you would lose all of your invested money.
You can find some more great, conservative stocks to invest in here
Riskier stocks for the aggressive investor:
Tech companies and cryptocurrencies are home to the riskier stocks nowadays.
You can find some more of the best high-risk stocks to invest in here and here
How Much Should You Invest?
Enough to where you can feel it in your budget. A good rule of thumb is to invest around 10% of your income, but just start with as much as you are comfortable with investing.
Invest or Save Your Money?
You need savings in case of emergencies, down payments, upcoming expenses, etc.
How much you want to save is up to you, but I suggest putting your savings in a high-yield savings account (I use Ally).
You will still not make much money from your savings account, even if it is high-yield. Interest rates for savings accounts are pretty low, so don’t expect to earn a lot of interest on your savings.
Inflation is also a factor when it comes to the decision of whether to save or invest. Having $10 saved in a savings account will not grow proportionately to the rise in inflation over time. So that $10 will not be worth as much in the future.
The younger you are, the more I recommend investing.
You have the advantage of being young as an investor because you have a longer investing horizon. You can afford to invest aggressively over a long period of time.
Also, investing as soon as you begin working will allow you to earn more money and potentially retire earlier.
When To Buy Stock?
Buy stock when the price is down (the numbers and ticker number will be red).
This way, you can buy the stock for a cheap price. When the stock comes back up, your money will grow and you’ll make a profit.
When To Sell Your Stock?
You can technically sell the stock anytime you want.
If you need some quick cash, you should sell the stock when the value of the stock is up (in green) in order to make a profit.
If you are young, I recommend keeping your stocks for a long period of time.
This will grow the money you are not using. You can sell one of your larger stocks when you are ready to make a big purchase (home, wedding, etc.).
There’s really no reason to sell your stocks unless the company goes under or you need cash.
These were some basic tips on investing in stocks for beginners. I hope you learned more about investing in stocks and feel like you are ready to begin investing! Check out how to invest in stocks in my post here.
Xo,
Layton