Investment 101: How to Start Making Extra Money
How to start making extra money? In today’s world, everyone is constantly looking for investment opportunities to grow wealth. Investing in stocks happens to be one excellent option. The issue with investing in the stock market is knowing how to go about it.
What most people do not know is that investing in the stock market can be as simple as opening a brokerage account. After that, you just need to choose a few individual stocks or mutual funds. All this can be done online. Also, there are several services that can invest in stocks for you for a small fee.
Below are six important steps to learn how to invest in stocks:
Decide how you want to go about your investment
There are several routes you can follow to begin your stock investment journey. Some people would want to follow the DIY route. This way, they will be able to choose the stocks and stock funds for themselves. Meanwhile, others recognise that investing in stocks is a great idea but would want someone else to manage the process for them. People who prefer the latter option are good candidates for a robo-advisors. A robo-advisor is simply a service that offers low-cost investment management. Most major brokerage firms offer these services, which invest your money for you based on your specific goals.
Once you have settled all of these, then you are ready to open an investment account.
Open an investment account
The way you need a bank account for transactions is the same way you need an investment account to invest. For people going the DIY route, this simply means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option.
Opening A Brokerage Account
An online brokerage account offers the quickest and least expensive pathway to buying stocks, funds and a number of other investments. With a broker, you can open an individual retirement account, also known as an IRA. You can however open a taxable brokerage account if you already have an adequate amount in your retirement account.
Before opening a brokerage account, you should evaluate brokers based on several factors. This includes costs (trading commissions, account fees), investment selection and investor research and tools.
Opening A Robo-Advisor Account
As earlier mentioned, a robo-advisor offers low-cost investment management. Any robo-advisor company will ask you about your investing goals during the onboarding process. They will then build a portfolio designed to achieve those aims.
Investing through a robo-advisor sounds expensive, but the management fees are generally a fraction of the cost of what a human investment manager would charge. Most robo-advisors charge around 0.25% of your account balance.
Set a budget for Stock Investment
People new to the investment world most likely have these two questions:
How much money do I need to start investing? The amount of money you need to buy an individual stock depends on how expensive the shares are. Keep in mind that share prices can range from just a few dollars to a few thousand dollars. If you want mutual funds and have a small budget, an exchange-traded fund (ETF) may be your best bet. Mutual funds often have minimums of $1,000 or more. However, ETFs trade like a stock, which means you purchase them for a share price — often less than $100.
How much money should I invest in stocks? If you wish to invest through funds you can allocate a fairly large portion of your portfolio toward stock funds. This is recommended especially if you have a long-time horizon. A 30-year-old investing for retirement might have 80% of his or her portfolio in stock funds; the rest would be in bond funds. Individual stocks are another story. It is advisable to keep these to 10% or less of your investment portfolio.
Focus on the long-term
Stock investing is filled with complex strategies and approaches. Even with these, some of the most successful investors have done little more than stick with the basics. That generally means using funds for the bulk of your portfolio.
After you start investing in stocks or mutual funds, the best thing to do may be the hardest. Don’t look at them.
Manage your stock portfolio
While constantly monitoring your investments won’t do much for your portfolio’s health, it is important to revisit your portfolio a few times a year. This is to make sure it’s still in line with your investment goals.
Here are a few things to consider:
If you’re approaching retirement, you may want to move some of your stock investments over to more conservative fixed-income investments.
If your portfolio is too heavily weighted in one sector or industry, consider buying stocks or funds in a different sector to build more diversification.
Finally, pay attention to geographic diversification, too. Vanguard recommends international stocks make up as much as 40% of the stocks in your portfolio. You can purchase international stock mutual funds to get this exposure.
Following all these will lead to you not only knowing how to invest, but also strengthening your investment portfolio.