On average, the stock market brings a return of about 10%. That means if you were to invest $100 today, next year you would have $110, just for investing your money. If you had $1,000 invested, next year you would have $1100.
It's time to learn about stocks.
Of course, this is in a perfect world simulation, where you get the average rate of return always. But as you know, the stock market is volatile, sometimes falling hundreds of points in a day.
And everyone invested in stocks hopes to never see a market collapse. When that happens, investors can lose entire fortunes overnight.
But unless we see a collapse of the entire economy, the stock market always recovers, and it always goes up.
As a result, anyone who wants to build long term wealth needs to consider investing in stocks. Ready to learn about stocks? Here's everything you need to know as a beginner to invest in the stock market.
In This Post:
What Is a Stock?
A stock is a piece of the company. When you buy stock in Microsoft, Apple, or McDonald's, you become a shareholder and a part-owner. You own a piece of that company.
Of course, you own one of the hundreds, and sometimes even thousands of pieces. Nonetheless, when the company pays out dividends to its shareholders, you'll get a piece of the pie.
Because the stock is a piece of the company, its value is proportional to the market's faith in the company. When the company goes under (like Blockbuster or Hastings or Toys r Us) the stock loses its value entirely.
That's why it's important to pick stocks in companies you have faith in. Warren Buffet made his fortune by really getting to know the companies he invested in. He decided whether they were worth his investment.
What Is a Stock Portfolio?
A stock portfolio is a term used to describe the different stocks you're invested in. An investment portfolio covers all your investments, including stocks, bonds, and real estate.
Most financial advisors suggest diversifying your stock portfolio. Instead of putting all your money in one or two companies, you have it scattered across several.
This is typically sound advice. The idea is some companies will fail, some will stay steady, and some will grow. By diversifying, it's more likely that the profits will be more than the losses.
How Can I Get Started in Stocks?
If you're looking to start investing, there's no luckier time to be alive! Before apps, and smartphones, investing in the stock market was for the rich. The few who could put up enough money upfront to cover the investment threshold could invest. This was thousands of dollars right away.
But now there are tons of investing apps that link to your bank account. You can download right on your smartphone. You can start investing with as little as five dollars.
Apps like Stash and Acorns let you invest small amounts into a diversified portfolio. (They also both just opened up retirement accounts!)
They also have a round-up feature that links to your debit card. This feature allows you to round up to the nearest dollar (or $5) every time you make a purchase.
That amount periodically gets transferred into your investments. This helps you grow your portfolio without you even noticing the money is gone!
You can also look into the app Robinhood. Unlike Stash and Acorns, Robinhood lets you buy and sell specific stocks.
So if you want to become a day trader, you should get started with Robinhood.
How Much Should I Invest in Stocks?
Most people who become millionaires say the secret is to spend less than you make. At the very least, you should try to save 20% of each paycheck. But the goal is to get this ratio as close to 50% as possible.
So what does that have to do with investing in the stock market? Well, after you have an emergency fund, you can start diverting some of your savings into the stock market. There is no golden number here.
Generally, the more you can invest, the better. Remember, not every investment will pay off, so choose wisely.
Can I Make Money In the Stock Market as a Beginner?
Yes, absolutely! But also no. There is nothing you can directly do to control how much you make in the market. There are ups and downs, crashes and booms, and much of it comes down to luck.
But there are a few things you can do to improve the likelihood your investment will pay off. First off, as we talked about before, diversify your investment. Second, pick stocks you believe in.
How Can I Learn About Stocks?
Thousands of people have dedicated their careers to making it big in the stock market. Despite claims that some guru can predict hot stocks, there's little to prove this.
Nonetheless, it's always worthwhile to learn about the market when you're considering investing. Many investing apps have educational articles directly in the app. You can also get a subscription to the Wall Street Journal.
What if you're curious about the differences between stocks and what experts say? Websites like these compare stocks so you can make the best choice.
Investing Is Hard to Learn, Easy to Start, and Vital for Building Wealth
When you start to learn about stocks, you'll discover that there's a lot to learn. From picking out stocks to studying the greats, your education is never done.
But sometimes the best solution is to diversify your investment. Weather the ups and downs of the market, and let your money grow.
Keep checking back for more great money-saving tips!