In Investing in Stocks for Beginners: Introduction & Best Investment Apps for Beginners, you learned the fundamentals of investing in stocks for beginners. You’ll need to set a goal and research to find the best assets for your portfolio. But once you’ve chosen your assets, you’ll need to focus on investing in a way that maximizes returns and minimizes fees.
Setting Investing Goals
Before you choose an investment strategy, stop and set some goals. Here are some questions to ask yourself.
- How old are you? If you’re saving for retirement, the time between your start date and the date you want to see results can make a big difference in how aggressive you invest.
- How much can you afford to invest? A big part of investing in stock for beginners is funding. No matter what your economic status, you probably don’t have an abundance of money to risk.
- How much do you hope to earn? In addition to your timeframe, you should also come up with a ballpark figure of how much you hope to earn from your investments.
- How much are you paying in taxes? In some cases, moving money into a Traditional 401(k) or Traditional IRA can help you reduce your taxable income, although you will have to pay taxes when you take the money out.
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Investing in Stocks for Beginners
It’s never been easier to invest your money. In fact, you aren’t even restricted to the stock market. You can invest in gold, cryptocurrency and even real estate. The internet has made it easier to track down these opportunities, but there are so many choices, it can be challenging to know which way to go.
At one time, if you wanted to invest, you contacted a stockbroker who built a portfolio using years of expertise and industry knowledge. But the internet took the process online. Each option has its pros and cons.
- Employer-provided investing: The first place to look if you’re considering investing is your own employer. Many businesses offer 401(k)s, and some even match the amount you put in.
- Online brokers: Whether you want the expertise of a broker or you’re ready to tackle investing on your own, the web is the best place to start. There are now numerous sites dedicated to helping investors build and manage their portfolios.
- Robo-advisors: Investing apps are especially valuable for beginner investors, since the technology helps you reach your goals.
Employer-Provided Investing Pros and Cons
There are a couple of ways your employer can set you up to invest. One is by offering stocks in the company as part of your employment. This ups your personal stake in how well the company does, while also giving you an even greater incentive to celebrate each of your employer’s successes.
But many employers offer a retirement savings account as part of your employment benefits. If your employer matches what you put into the account, it’s wise to max that out. With a Traditional 401(k), your money is put into the account pre-tax. You’ll have to pay taxes at retirement, but you’ll reduce your taxable income today while also earning interest on the funds in the account.
There are some downsides to employer-provided investments. With stock options, you may be required to fulfill a vesting period, which means the stock won’t be yours unless you stay with the company for a fixed number of years. With a 401(k) plan, you’ll often find fees are higher by going through your employer versus investing in an IRA on your own.
Online Brokers Pros and Cons
For beginners, online brokers can be a great option. Sites like Etrade make it simple to do it yourself, with an easy-to-use interface and plenty of learning resources. There are also sites like TD Ameritrade that let you manage your own investments for free but give the option of broker-assisted trades for a fee.
By using an online broker, you’ll have the benefit of shopping around to find the one with the lowest fee. Many let you invest with a small amount of money. Best of all, you can find online brokers that let you trade for free. The money you save on investing commissions and fees can be put toward building your portfolio.
One of the biggest disadvantages to online investing is the very thing that makes it so useful in the first place. Over time, you can find yourself spending far too much money without even realizing it. You may also realize that you’re becoming addicted to checking your earnings, which can lead to stress and a reduction in your quality of life.
Robo-Advisors Pros and Cons
Many online brokers offer something called robo-advising, automatically investing your funds for you using predefined benchmarks. The idea is that by taking emotion out of the mix, you’ll get better results. Since technology does the work, you can often get the service without paying significant fees.
But robo-advisors have a downside. It can be too easy to turn things over to the algorithms and walk away, but it’s important you still monitor your portfolio and make tweaks as necessary. Beginners should look for a robo-advisor that has an easy-to-use interface, as well as human help in case you need assistance.
Spare Change Investing
At one time, if you wanted to invest, you needed hundreds or thousands of dollars. But you no longer have to take that big of a risk. With features like fractional investing, you can buy into some of the biggest stocks out there for just a few dollars.
Spare change apps are a great way to get your feet wet without feeling like you’re taking a big risk. Solutions like Acorns will round up a little with each purchase and put the money into building your portfolio. You can also set it up to automatically invest money from each paycheck.
Invest While Spending
Some credit cards issue points toward travel or gift cards when you spend. But a new breed of rewards card has emerged. These cards put money into stocks as you spend. Stash Invest is one of those cards. You’ll earn stocks with every swipe.
The downside to this type of investing is that it can be tempting to spend more than you would normally. With Stash Invest, for instance, if you shop at Starbucks, you earn Starbucks stock. But the best thing about this is that your money will be put into the products that you personally believe in, which is a sound investment strategy.
Investing can seem daunting at first, but there are so many platforms that make it easy, the hardest part is picking the right one. Make a list of the features that are most important to you, then combine that with your goals to track down the best solution to meet your needs.
Read More: Examples of How to Make Your Money Work for You
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.