Looking to invest in the stock market but have no idea where to begin? You’re not alone; investing in the stock market can be confusing and overwhelming, especially for first timers. People usually think investing in the market is like gambling: the house, like the market, will always win and you’ll eventually lose money. Or they know they should invest for the long term but don’t know how to start. So how does one navigate the stock market?
Set Investment Goals
Are you looking for long term investments to help save for retirement or are your goals more in line with buying a house? If you have multiple financial goals, prioritize according to their level of importance If your list of goals is lengthy, focus on the top three. These goals should reflect what is important to you and your financial future. Additionally, set a time frame for each top goal. These particular goals and time frame will create a foundation for how you will navigate the market. Essentially, your investment decisions will be led by these goals.
What is your risk tolerance? Spend time thinking about and evaluating your true feelings regarding how high your risk tolerance is. You don’t want to invest in something that far exceeds your comfort zone. If you’re nervous about even losing a dollar or two, the stock market probably isn’t for you. Tucking your money away in a lower risk option is most likely your best bet. However, if you’re comfortable with a possible 10% loss, then the market may be for you.
Length of Investment
- Less than 2 years: If you’re looking to access your money within two years, the market is a bad idea. With investments less than two years, you’re not likely to turn a profit, but rather lose money. Shorter investments don’t have the time to rebound like other longer investments do. You’re better off putting that money in a high yield savings account.
- 2-10 years: If your investment period is between 2-10 years you have a much higher chance of returning a profit, however that doesn’t mean there is a guarantee. Within this time frame it is smart to diversify your investments at whatever risk level you’re comfortable with.
- 10+ years: At this level, the stock market is a good place to put your money. In terms of the history of the stock market, almost every investment over 10 years has seen a return. When you look at it this way, that’s pretty good odds. If you’re in this category, investing heavily in the stock market is your best bet.
Ready to Invest?
Generally speaking, if you are looking to invest a small amount of money look to companies who don’t require high minimums. Many investment firms require at least a $3,000 minimum just to get started. Certain firms such as Scottrade or E*TRADE Securities cater to the first time investor, providing easy trading tools and low minimums. These firms make it easy to jump into the stock market world.