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Did you know that about 55% of Americans own stocks? If you’re not one of them, it could be that you don’t yet understand the process for investing in them.
After all, few people get shown how to invest in the stock market by their parents. Teachers don’t teach this skill this to you in school. So, you’re left to learn about it yourself.
Given this, if it’s your first time buying stocks, it’s normal to feel confused and nervous. The stock market can look complicated from a distance. Thankfully, with modern investing apps like Acorns, Stash, or Ally, you can invest in stocks with ease—and just a few clicks.
So, how do you do this and what steps should you take when buying your first stocks? Read on to learn how simple this process can be.
1. Choose an Investing App
The first step you will need to do is to choose an investing app. They all work pretty much the same, so this is not as crucial of a decision as you might think. Regardless of which investment app you choose, the five steps to buying your first stock are always the same.
They are:
- Download an investment app from the App Store
- Register for an account by entering your personal info
- Enter the name or ticker (3-4 letter symbol) for a stock you want to buy
- Enter how many shares you want and/or the total amount of money you want to invest into it
- And finally, click “Buy”
If you don’t know which stock investment app to choose, then SoFi stocks, Acorns, Stash, Ally, or Fidelity are all decent options. Lots of stock investment app will work though, so choose one and get started with the steps above.
2. Choose a Specific Stock (or Basket of Stocks)
Before you even sign up for your first brokerage account, you’ll want to do a little preliminary research. Many people jump onto the stock market bandwagon due to “meme stocks” online, but they usually end up getting burned.
As you learn more about various types of stocks, you’ll learn about what’s a “smart bet” and what’s “higher risk.”
You have two different approaches you could take here. The first is to bet on a stock that you believe in.
For example, you could buy stock in Coinbase Global (NASDAQ:COIN), because cryptocurrencies are a massive trend and Coinbase is a leading crypto exchange. Or, you could invest 5k into Amazon, (NASDAQ: AMZN) because it the world’s largest retailer and it is investing heavily into serving India, a massive country that is overtaking China to become the world’s most populous country.
The point is that you could choose one stock that you wholeheartedly believe in, based on the trends that you are actively watching in the world. The downside of this approach is that it is a higher risk, higher reward approach, because you could be right or you could be wrong about a single company’s long-term performance.
If you’re new to the stock market, your other (safer) option is to buy a basket of stocks that track the stock market as a whole. Typically, these easiest way to do this is to buy shares of an Exchange Traded Fund, called an “ETF” for short.
Don’t worry about the lingo here. An ETF is just a basket of stocks that you can buy together, instead of having to buy each stock within it individually.
The benefit of this approach is that you will match the performance of the stock market as a whole and you don’t need to make any major investment decisions.
If you want to go this route, low-fee ETFs that track the S&P 500 are:
- Vanguard S&P 500 exchange-traded fund (VOO)
- iShares Core S&P 500 ETF (IVV)
- SPDR® Portfolio S&P 500® ETF (SPLG)
All of those ETFs would be simple options for getting started.
3. Invest What You Can Afford to Lose
As a beginner investor, you should exercise caution when you’re buying stocks for the first time. Make sure that you only put as much money into your investment account as you’re able to lose.
Ideally, you’ll be able to use the stock market to supplement your savings account. As a beginner, though, you don’t want to dump your entire savings account into the market.
Remember that stocks dip and the market, especially at the moment, is volatile. If you’re living paycheck-to-paycheck, only invest the amount of money that you can afford to lose.
4. Invest for the Long-Run
Unless you are a day trader, stocks are usually long-term investments. It’s easy to get nervous and sell as soon as the market dips, or as soon as it seems like nothing is changing, but you have to be patient and wait it out.
Your portfolio can grow over time if you let it. With that in mind, that doesn’t mean that you should “set it and forget it.” You should still keep an eye on how your stocks are doing.
To help you stay patient, the S&P 500—a stock market index that tracks 500 very large companies—has returned a historic annualized average return of 10.5% from when it was created (1957) to present. With this rate of return, your investment would typically double in value in about seven years.
So, if you can have the discipline to ride the ups and downs, you will have a good chance of growing your “nest egg” over the long-run.
First Time Buying Stocks? No Problem!
If it’s your first time buying stocks, make sure that you keep these tips in mind. Remember, the stock market can be risky and volatile, especially if you don’t do your research.
Don’t rely on it for income (at least not right away) and remember to stay patient, because you will likely pay substantially less in taxes when you sell if you hold your stocks for longer than one year.
Good luck with your first investment!
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*Disclaimer: This article is for educational purposes only and does not constitute financial advice. Before making any financial decisions, consult with professional adviser, financial planner, or CPA.