You can’t penny-pinch your way to wealth, which is why personal finance gurus will tell you that you have a better shot at investing if you want to grow your money. And one way to do so is by investing in the stock market.
While it may be tempting to live like a pauper and stash all your cash away in a savings account that earns .05 percent in interest annually, it’s not the best course of action. Not only will your funds dwindle in value due to the rising rate of inflation, but you’ll miss out on the opportunity to let compounding interest to work in your favor.
When to Start Investing
There’s no perfect time to start investing. But the earlier you hit the ground running, the better. Why so?
The Power of Compounding Interest
It all boils down to compounding interest, which allows your money to make even more money as your account balance grows. And the earlier you get in the investing game, the more time you have for compounding interest to work its magic.
But if you’re late to the races, you’ll have to put more money on the table and adopt a more aggressive growth strategy to catch up and meet your investment goals.
Another important consideration: stock market fluctuations. Throughout your life, the market will have its share of turbulence. But if your money has been growing for a while and you’re now earning loads of interest on top of interest, you could take a hit but it won’t be as severe as what investing newbies would have to deal with. And since the initial amount you invested may remain untouched, you could recoup your losses sooner than later.
Quickstart Stock Market Investing Through Acorns
If you want to start investing without putting too much dough on the line, the micro-investing app, Acorns, may be worth considering. Acorns pride itself8 on helping individuals from all walks of life grow wealth, regardless of background or economic status. And they make it affordable to use their platform as you’ll only spend between $1 and $3 each month in fees.
Another key benefit of investing with Acorns is that you’ll have access to their vast library of financial resources from experts in the field. These videos and articles are available to help you better manage and grow your money in the easiest way possible so you can live life on your terms.
Offerings from Acorns
Interested in investing with Acorns? There are two ways to get started:
Wouldn’t it be nice if you could use your spare change to invest and build wealth? Acorns Core allows you to do just that, and you’ll only pay $2 per month until you have $1 million worth of assets in your Acorns portfolio. And if you’re a college student, there is no monthly fee.
It only takes five minutes to open and establish your account so you can start investing and growing your money right away. Here’s how it works:
- Link your debit or credit card to your Acorns Core Account.
- Opt-in to daily, weekly, or monthly Round-Ups (to the nearest dollar) on your purchases.
- Acorns will deposit the funds to your portfolio.
Quick note: if you’d prefer to grow your money even faster, you have the option to double or increase the Round-Up amounts by 5 or 10 times.
This option caters to those looking to build their nest egg, but it may be ideal later on down the line when you’re ready to start investing more in the stock market to save for retirement. Here’s how it works:
- Create an account with Acorns and select “Acorns Later” as your preferred method for investing.
- View the recommended IRA and portfolio options and select the one that best suits your needs.
- Set up recurring contributions to fund your account. (You can start with as little as $5 per month).
- Watch your money grow!
Acorns Later investors pay $2 per month until the value of the portfolio reaches $1 million, but this amount also includes Acorns Core.
A More Hands-On Approach to Investing in the Stock Market
Prefer to skip Acorns or any other micro-investing app and do your own thing? Below is step by step guidance on how to buy stocks your own:
Step 1- Apply for a Brokerage Account
Brokerage accounts are used to execute investment orders, like purchasing or trading stock.
Account options include:
These are hands-on accounts that cater to investors seeking assistance from start to finish with trading. Financial advisers from the brokerage firm are usually on hand to assist when needed, and you may incur higher fees than you would with a discount brokerage account.
Discount brokerages offer less support to investors as they are geared towards those who invest online or prefer to take the DIY approach. In turn, the costs are minimal compared to what you’d pay with a full-service brokerage account, and you may not be required to make a minimum deposit to start investing.
Step 2- Conduct research
Unfortunately, some shady financial advisers and brokers will recommend particular stock solely on the strength of what they have to gain on the backend. Simply put, if there’s an opportunity to earn a higher commission, they’ll do it regardless of how much it could cost the investor in the long-run.
That’s why it’s so important to do your research on the company you’re looking to invest in to ensure that they’re in good financial health and the future is bright from an earnings perspective. A few tips when researching companies:
- Review the annual report, which can be accessed from their website. Pay attention to financial data and projections.
- Monitor the company’s performance to get a feel for what the future may hold.
- Use the resources provided by the broker to research the company’s financials.
Step 3- Retrieve a Stock Quote
Stock quotes, which can be obtained from Nasdaq.com in real-time or your broker, contain the following components:
- Ticker symbol- an abbreviation of the company’s name
- Bid- ceiling on the price per share that buyers are willing to pay
- Offer or Ask Price- lowest price per share that sellers are willing to accept
- Historical data related to trading volume
- Tools to help predict future performance
Step 4- Place An Order
Once you’ve decided on the shares you wish to purchase, the next step is to place an order to purchase stock. There are three types you should be aware of:
- Market order- guarantees your order is filled with the requested number of shares, regardless of the asking price (even if it exceeds your bid)
- Limit order- guarantees your order is filled at the requested bid (even if you don’t receive the number of shares you want)
- Stop order- these orders are only filled when the number of shares you request reaches what’s referred to as the “stop” price
Take a look at the following scenarios to get a better feel for how stock orders work:
- Bid- $175 (50)
- Ask- $180 (75)
- Last- $185 (100)
Scenario: You place a market order for 85 shares at $177. You’ll receive 75 shares at $180, and assuming the seller agrees to issue 10 more shares at $187, that’s the price you’ll pay for the additional shares.
So, your final market order will be for 75 shares at $180 each, and 10 shares at $187 each.
- Bid- $195 (90)
- Ask- $185 (55)
- Last- $205 (150)
Scenario: You place a limit order for 70 shares at $185. Since the seller is only offering 55 at that price, you can execute an order for that amount and wait until the seller offers more shares in the future.
Important note: since limit orders are executed before market orders, it may be a good idea to choose the latter if you’re set on acquiring a set number of shares of a particular stock.
These mimic market and limit orders, but the key differences are as follows:
- Stop-loss orders are only executed when the number of shares you want is available at your desired price point, or what’s referred to as the stop price.
- Stop-limit orders are only executed when the shares reach the stop price, but you may not receive the total number you initially requested.
Terms You Should Know
- Stock- represents a share or percentage of ownership in a business
- Bond- an asset that enables you to loan money to a business or government for a set period in exchange for a return that includes a specified interest rate
- Asset allocation- refers to the strategy you use when investing in hopes of mitigating risk while earning generous returns
- Diversification- refers to the act of investing in different types of assets and/or an array of securities from different companies and industries to hedge against your portfolio’s performance
- Portfolio- an assortment of investments, typically comprised of stocks, bonds, and other securities that you own
Before You Start Investing….
A few quick tips before you start investing wads of cash into the stock market:
Research, research, research!
As mentioned earlier, it’s a must you do your research before purchasing a single share of a company’s stock. Otherwise, you could find yourself with a worthless investment on your hands and lose hundreds, if not thousands of dollars.
Set realistic investing goals
It’s best to set realistic investment goals out the gate instead of getting in over your head, only to set yourself up for disappointment if you take a few losses and go through the growing pains that come with investing in the stock market.
Crawl before you walk
To piggyback off the last point, you will learn lessons from the school of hard knocks when you start investing in the stock market; some a little more painful than others. So, crawl before you walk by only investing a small sum out the gate and working your way up the ladder as you’re more comfortable.
Even if your financial adviser tells you that you need to invest a huge chunk of money to meet your money goals and retire at 65, stick to your guns. Only contribute what you can afford each month and focus on improving your financial situation so you can have more disposable income to invest soon.
Build a cash stash
The stock market has a mind of its own. And even if a particular stock is slated to perform well, things could go left and you could lose your earnings and entire investment at the drop of a dime. For this reason, it’s not a good idea to rely on your stock portfolio as an emergency fund if life happens and you need cash fast. A better idea: build your own first, and then invest in the stock market so you won’t be in a state of panic is the market does go left. If you don’t know where to start or need ideas, this guide can lend a helping hand. (hyperlink)
The Bottom Line
Investing in the stock market is an ideal way to start building wealth if you do your homework and make informed decisions. But you should start small and ramp up your contributions as time progresses and you learn more about how the stock market works.