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Ladies and gentlemen, I am going to be honest with you. I'm not a genius financier. I'm not a financial advisor, nor am I really that bright when it comes to investments. However, even though I am not a Wharton graduate, I can still teach you how to invest in the stock market successfully.
Why, you ask? It's simple. Contrary to popular belief, you don't really need to know much about stocks in order to start your own investment portfolio. Though knowing stock market terms and due diligence can help, the truth is that you can still coast along without much reading.
Here are some tips I've personally used when I began to invest my own money. May they help you as much as they've helped me.
Don't be afraid to let a robo-advisor app invest on your behalf.
If you want to start investing the old fashioned way, you will need to read up on a slew of stock market terms, figure out what you will want to invest in, and do a ton of due diligence that you might not be able to work with. Yawn!
It's a lot of work to do, and a lot of beginner investors just don't have time for that. A better option would be to let a robo-advisor app like Acorns do the hard work for you. Acorns creates a portfolio that works with your financial goals according to questions you answer, and does the due diligence for you.
You can also invest in ETFs for an easier portfolio.
ETFs, also known as Exchange Traded Funds, are excellent choices if you're looking to start investing in the stock market without too much effort. What is an ETF? Personally, I like to define them as a beginner's best friend.
These are professionally managed funds that are often focused around a single theme. Each fund has a bunch of smaller shares of company stock in them, and some will also have other investments like gold, real estate, and commodities in them as well.
Warren Buffett would be proud to know that you'll have a diversified portfolio to invest your money in, even if it's not filled with handpicked stocks of your choosing.
Some apps, like Stash, offer specialized ETFs based around themes for as low as $5 per slice. It's a great choice for people who aren't ready to pick stocks on their own, or who want to save money on a portfolio.
Investing in index funds is a wise choice, too.
If you literally are about to start investing in the stock market without knowing anything at all, let's talk about market indexes. Market indexes are groups of companies that people use to gauge how well the economy is doing altogether.
Some market indexes include the S&P 500, the Russell 2000, and the Nasdaq Composite. Index funds are mutual funds that are based on these market index, and can have as many as thousands of different companies in them.
David Ramsey and other personal finance gurus suggest investing in the best S&P 500 index funds as a cheap yet effective way to beat the market year after year.
Understand that traditional stock investing probably won't work out without more education and due diligence.
You probably should not start investing in the stock market the traditional way—at least, at first. Stock investing takes a while to understand, and to a point, is also riskier and pricier than just downloading an app like Stash or Motif and investing in ETFs.
Traditional investing means you will need to understand stocks on a different level. You will need to understand stock market terms, and more. We suggest reading up on some books before you try this route, such as The Intelligent Investor.
Start small, and don't invest money you can't afford to lose.
This may seem like a common sense point, but it's truly one of the best bits of advice you need to learn if you want to start investing in the stock market the right way. Simply put, if you can't afford to lose the money you're investing, sock it away in savings instead.
Your emergency savings are a form of investment, you know! It's okay not to invest in stocks if you need to invest in an emergency cushion.
Consider other investment routes first.
A common piece of advice you need to consider is the idea that you should invest in what you know. To a point, this is true. You tend to be able to make better decisions when you know an item or industry extremely well.
Though this is an article about being able to start investing in the stock market while you're green, it's important to realize when there may be a better investment route for you. Sometimes, your lifestyle says it all—and your luck may be better elsewhere.
For example, if your family has a lot of construction workers in it, it may be a wise idea to try real estate home flipping instead. Other times, it might be better to invest in fine art, especially if you're an art student.
One of the easiest ways to start investing in the stock market is to take up your employer's offer of a 401(k).
If you have a salaried job, chances are that you may have a 401(k) as a company perk. That 401(k) option is one of the fastest ways to get into the stock market and also fund your retirement.
The cool thing about 401(k)s is that they are company-managed. That means that you can literally set aside your money, forget it for a while, and then reap the benefits when you're old enough to retire.
Don't have a workplace that offers a 401(k)? Not a problem. You can do something similar with a Roth IRA.
Don't sweat the dips.
The stock market is a lot like the ocean; it ebbs and flows. Most new investors tend to flip out the minute that their stocks take a dive, and frankly, it's understandable. It's scary to see your money suddenly lessen like that.
Selling isn't the answer, though. Rather, it's important to stick with a good investment and wait for the rise to come back up again. Otherwise, you're going to sell your goods at a loss.
Understand that brokers are not always going to act on your best interest.
Stockbrokers and investment houses are great—if they act on your best interest. The problem is that many brokerages tend to avoid salaries and rely on commissions to pay off their staff members. This leads people to invest in stocks and bonds that may be way riskier than what you would be comfortable.
There have been cases in which people have lost millions simply because their brokers were more interested in their paycheck than their clients. If you choose to go this route, make sure you vet your broker thoroughly.
Finally, when the going gets tough, you might want to invest in boring stuff.
When you start investing in the stock market, it can be really tempting to invest in all the cool companies you know—Starbucks, Apple, Ford... But let's be real, during a recession, people aren't going to be buying as many iPads as they are during a bull market.
If you want to prepare for an economic downturn, start looking at "boring" stocks that people need. Stocks like food stocks, water stocks, even electricity stocks are often the safest bets out there.