An important disclaimer: I am not a financial advisor and none of the below should be construed as financial advice. The below details tactics that have worked for me, but you should not expect to see similar success. Stock market investing is SUPER risky, only choose strategies that work for your personal goals and circ*mstances, and always seek advice from an accredited financial advisor.
Also, full disclosure: I am a proud affiliate, meaning if you click a link and make a purchase, I may earn a commission at no extra cost to you. My recommendations are based on deep experience with and knowledge of the products I mention and I recommend products only when they are genuinely helpful and useful, not because of the small commissions I may receive. Please don’t spend any money on products I recommend unless you genuinely believe they will help you achieve your goals.
The stock market can be a daunting place for beginners. I remember what it felt like when I started my first retirement account. It was massively overwhelming and I felt like a hopeless, confused donkey as I made my investment choices.
Because it can be such a scary place to be a beginner, I recommend going slow. The key to success is to start with a solid foundation and then build from there.
In this article, I’m going to share 5 simple tips to help you get started on stock market investing.
Why Invest in the Stock Market?
There are numerous investment options, and in terms of the level of risk, stock market investing is generally a riskier investment. However, your personal level of risk will depend on how you invest.
So why bother investing at all if there’s such a high risk?
The old adage, “high risk, high reward” definitely comes into play here. So yes, it may absolutely make more sense for you to choose a safer investment. However, good fortune in the stock market can often result in higher gains than traditionally safer investments, though that’s certainly not always the case.
The S&P 500 is often used as a reflection of the health of the stock market, as it tracks the performance of the 500 largest companies.
According to the Motley Fool, “the S&P 500 index has delivered a compound average annual growth rate of 10.7% per year.”
You’ll want to take a careful look at the details, however. In 2021 the S&P 500 delivered an average return of 28.71%, but in 2022 it delivered a return of -18.11%. Yes, that’s a negative number.
What that means is that there was great growth in 2021, but a significant downturn in 2022.
Investing in the stock market is not for the faint of heart. If you’re committed to investing in stocks, you’ll need to be able to stomach the heartaches. Stay it in long enough and you will experience heartaches, but you’ll also get the opportunity to experience growth.
Ultimately, you’ll need to decide for yourself if it’s worthwhile to allocate your valuable investment funds to such a risky venture.
How to Get Started
Not sure where to get started? You’re certainly not alone, and personally, I’d recommend that you come prepared with an arsenal of tools.
What I mean by that is that you should research what resources are available, study books, and learn absolutely everything you can (within reason) before getting started on your stock market investing journey.
The very first stock market book I ever read was The Bogleheads’ Guide to Investing, which I still recommend today. It provided me with a lot of the important foundational knowledge I still use to this day.
The Bogleheads’ Guide to Investing is simple in its approach, it’s easy to understand, and it seriously made stock market investing a lot less scary (at least for me). Plus, it’s based on the investing principles of John Bogle, who founded Vanguard, one of the few investing companies I’ve actually come to respect.
5 Tips to Help You Prepare for Success in the Stock Market
Ready to dive in? Here are a few tips to help you prepare for success in the stock market:
1. Start by setting your financial goals.
What goals will investing in the stock market help you achieve?
Do you want to save for an early retirement? A big purchase? A financial cushion?
Once you know what you’re saving for, you can start to develop a plan to reach your goals.
2. Do your research on investing options.
Before you start investing in the stock market, it’s important to do your research and learn as much as you can about your options.
If you’re just getting started, index funds are often a good starting point (it’s also recommended in The Bogleheads’ Guide to Investing book). However, choose investment options that make the most sense for your financial circ*mstances and goals.
Most important in this step is that you take the time you need to make sure you can make educated investment choices.
3. Start small.
An important rule of thumb is to start small and NEVER invest more than you’re willing to lose (my family follows this rule strictly). The stock market is a risky investment, after all.
You can always invest more, but give yourself the chance to get comfortable with your investment choices by starting small.
4. Invest for the long term.
The stock market is volatile, and there will be ups and downs along the way. You’ll generally limit your exposure to losses by investing in the long term.
You may want to commit to investing a fixed amount every month to help your account grow over time. You may also get dividends from stocks, which you may want to reinvest.
In any case, make sure you’re making choices that fit your financial needs and goals.
5. Diversify your investment
Regardless of what you choose to invest in, it’s important to diversify to limit your exposure to risk.
You may want to choose several index funds, or a select group of company stocks, for instance.
In any case, I’d never recommend putting all of your money in one place.
Why Consider Starting with Index Funds?
Index funds are a great way for beginners to start investing in the stock market. They’re low-cost, diversified, and they track the performance of a specific market index, such as the S&P 500. This means that you can get broad exposure to the stock market without having to pick individual stocks.
When I started investing, I picked a few mutual funds, which performed poorly, and then I picked an index fund that matched the S&P 500, which performed well. If I had to start over again, I’d start with index funds alone.
Today, I use a broad mix of index funds and individual company stocks, though it was several years before I even felt comfortable investing in individual company stocks (which are usually much riskier investments).
Conclusion
The stock market might seem like a big, scary monster initially, but it becomes a much more tameable beast once you commit to learning how it works.
Give yourself time and take it slow, you don’t need to know it all one night. It took me years of constant learning before I started feeling truly comfortable, and I’m NO expert.
Yes, it can be super complicated if you choose to pursue the path of market research, shorts, and a number of other investment pursuits, but I know of only a few people that have actually chosen that path.
Start by learning the basics and you’ll already be off to a great start in the stock market world.
Psst… if you’re committed to really diving in and want to understand the depths of stock market investing, I recommend reading A Beginner’s Guide to the Stock Market (which is definitely more complicated than it sounds, don’t be fooled by the name).
Think investing in the stock market will help you achieve your FIRE goals? Check out the posts page for more ways you can FIRE Your Career and achieve financial freedom.
FIRE Your Career: Achieve Financial Freedom Through Your Career & Spend MORE Time Doing What You Love.
Products I recommend in this article:
The Bogleheads’ Guide to Investing (stock market investing book)
A Beginner’s Guide to the Stock Market (a more in-depth stock market investing book)
I developed a successful career and in so doing, paid off a massive amount of student debt in a relatively short time, grew my savings, and made significant financial investments. While maximizing my income and savings, I learned to live below my means so that I could live life on my terms. I’m passionate about building a career to fuel a FIRE lifestyle because I believe that everyone deserves to live life on their terms. By living a passionate and fulfilled life, we can make a bigger impact on the people around us, and in turn, make the world a better place.
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A brief reminder about that disclaimer: I am not a financial advisor and none of the above should be construed as financial advice. For financial advice, please seek advice from an accredited financial advisor.
