Getting into the Stock Market at first can be challenging, however, it is an incredibly useful tool for becoming financially literate. Learning how to invest can provide a massive advantage in building long term wealth and generating passive income. Luckily, this guide will teach you the fundamentals you need to know about the stock market, and provide you a guide on how to begin investing
What does “buying a stock” actually mean?
Buying a stock means you actually own part of a company. Companies known as “public companies” can sell some of their shares on the Stock Market for investors to purchase. When someone invests in stocks, they are seeking to make a profit. Think of a company as a pie, when you are purchasing a stock you are buying a slice of the pie. Stocks can represent individual companies, or even a large collection of them. These can be known as index or mutual funds.
What Determines if the price goes up or down?
The Stock Market is essentially a bidding war between buyers and sellers following the basic rules of supply and demand. For instance, if there are more people buying a stock than selling it, the stock will rise. On the other hand, if there are more sellers than buyers, the stock will lower in price. There are a lot of factors that can shift the amount of buyers and sellers, such as new news about the company, current events, or even the time of day. So how does one begin investing? Well follow these three easy steps and be on your way to conquering your financial freedom.
Step one: Open a brokerage account so you can buy and sell stocks.
Brokerage firms are companies that allow you to buy and sell stocks on their platform. This can be in the form of an app, website, or even a phone call with your broker (a person with the ability to invest for you). I personally recommend TD Ameritrade, I find the app and website very user friendly and simple to use. It additionally comes with a free software known as thinkorswim, which is an advanced platform for traders.
Step 2: Buy your first stocks
Now that you have a way to buy and sell stocks it’s time to purchase your first ones. Disclaimer: Make sure you do a large amount of research before investing in singular companies; it is recommended for beginners to invest in index funds, such as the S&P 500. This is because the S&P 500 monitors it’s companies for you, so you don’t have to do a lot of research and watching. Once you are logged into a platform of your choice, simply search for your desired stock and purchase.
Step 3: Check in on your stocks and sell
Make sure to frequently check in on your investments. If the company you're invested in gets into trouble, it might be a bad idea to sell and get out. It is recommended for beginner/simple investors to hold onto their investments for extended periods of time. This is because historically, the stock market tends to make gains of 6-10% a year. By holding onto your investments, the stock's value can compound overtime.
Getting into the stock market at a young age can be extremely beneficial. There is no age “too young” and no amount of money “too small.” The more time you’re in the market, the longer your money will grow.