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What is investing — and what are stocks?
What’s the best way to get started?
Keep the risks in mind
Ready to invest in stocks?
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If you want to win financially, a defensive strategy won’t get you there. After you secure your financial foundation with a budget and a fully stocked emergency fund, it’s time to play a little offense. Instead of letting your money just sit in an account, you can make it work for you by investing in stocks.
What is investing — and what are stocks?
Investing is putting your money into an asset that will generate more money in the long run. Real estate and stocks are some of the most common investment types. And while real estate investments are often part of a smart financial plan, let’s focus on stocks for now, since they’re easier to access.
When you purchase a stock, you’re essentially buying a tiny piece — also known as a share — of a company. When the company does well, your stock’s value generally goes up. When the company does poorly, your stock’s value often drops.
So before you put your money into any company, it's a good idea to do some research. Understanding how a company is performing and what its future looks like can help you make smarter investment decisions.
What’s the best way to get started?
One of the most common ways is to open a 401(k) or IRA. But wait, aren’t those retirement accounts? They sure are. They’re retirement accounts that take the money you contribute and invest it in the stock market to increase your value over time, so you have a healthy nest egg to retire with. Most 401(k) and IRA providers will manage your portfolio for you, but if you’re feeling confident, you can select the stocks you want yourself.
Good to know: With retirement accounts, you’re often not buying individual stocks but investing in mutual funds, which are collections of stocks that many people also invest in. This collaborative approach is intended to reduce individual risk and increase overall returns.
You can also purchase a stock outright. Some employers offer company stock as part of an employee’s compensation and benefits plan.
You can also buy stocks straight from a company you aren’t affiliated with, but that can be a little challenging for beginners. In a nutshell, you will need to make an account with a brokerage service (like Vanguard or Fidelity), deposit some money, and pick the stocks you want to purchase.
If all that sounds like too much, investment apps like Webull and Robinhood make buying stocks more user-friendly, so they’re ideal for beginners.
Other apps, like Acorn, allow you to micro-invest small amounts of money into the stock market by rounding up your credit card and debit card transactions to the nearest dollar and automatically investing the difference for you. It’s an easy, low-risk way to start investing in stocks.
Keep the risks in mind
Real talk: Any stock investment involves risk. Depending on your personality, lifestyle, and needs, you may be more or less risk-averse.
Generally speaking, as people get older, they choose more stable investment options to protect their established retirement fund. Younger people will hopefully have more time to recoup any losses, so they tend to be a little more willing to take on risk. It’s up to you to decide the level of risk you’re comfortable with.
Here’s a good rule of thumb: If you’re not okay with potentially losing it, don’t invest it.
Ready to invest in stocks?
Wherever you're starting from, starting is what matters most. Our partners at Pinnacle Wealth can help you look at all the options and build an investment plan that makes sense for where you are right now and where you want to go in the future.
Note: This information is for educational purposes only and should not be used as investment advice. We recommend Pinnacle Wealth for help with your investment strategy.
