If you are planning to invest in the stock market but you are not sure where and how to start, this article will provide a complete guidance for investing in stocks for beginners. In addition to the stock investing, you may find information on other major investments at the end of the article.. For you to understand, I have categorized the starting process of investing under 3 main topics.
- Decide how you want to start
- Open a brokerage account
- Start investing and Manage your investment portfolio
DIY Investing vs Robo Advisor?
You may have to decide if you are going to approach and manage your investing decision in stocks by yourself or if you would feel the need of getting the assistance through this process. You can choose the DIY method and do the stock market analysis by yourself and create an investment portfolio.
The other option is you can use the assistance of a robo-advisor, also known as brokerage. A robo advisor will analyse your investing goals, age, risk tolerance and will invest your money on behalf of you in an investment portfolio of index funds that it may find as suitable for your profile the best according to the analysis that was done using your investment goals and other facts.
If you are a complete beginner and are overwhelmed because you are not sure where you should invest your money, and also you have not mastered the investment analytical skills yet, you could choose this option. Robo advisors are often affordable and are a great option if you do not want to risk out your investments when you lack experience and analytical skills.
What is a Robo-advisor?
A Robo-advisor is an automatically managed diversified brokerage account. It is managed through a computer program, therefore in most of the robo-advisor programs there is no human interaction throughout the process.
However, in some robo-advisor programs you may get assistance with both human and computer algorithms.
Even though there is no or very less human interaction throughout this process, you may still have to pay a cost to take the service of a robo-advisor. However, it is a very small cost compared to the service it provides.
And also, there are few best robo advisor services that provide free service. For instance, Charles Schwab robo-advisor provides free and tax-loss service to their clients. In addition to that there are many excellent robo-advisors that you can take the service for a very low cost.
How Does It Work?
You need to input the details of your investment goal and also other important details such as your age, the approximate amount you would like to invest initially, how much of a risk you are planning to take etc.
The amount you invest initially could be changed by adding or withdrawing money and the robo advisor will keep it managed. Once you have provided the inputs of that details, the computer program will create an investment portfolio with allocating your investment in a collection of ETF funds and mutual funds.
Keep in mind that there are both advantages and disadvantages of Robo-advisors.
Pros of using a robo-advisor
2) Low requirements for minimum balance
Thanks to the Zero minimum balance technology, some robo-advisors has not listed any minimum balance requirements and that is a very good opportunity for small investors.
3) Makes the investment process easy
Creating a robo account is a process which is very simple. And also, after you invest through a robo advisor you do not have to keep analysing and managing your investments, your robo advisor will be taking care of it.
Cons of using a robo-advisor
4) No direct contact with the robo-advisor
If you are not likely to trust a brokerage to maintain and manage your investments, without having to meet them in person, or explaining your investment plans verbally face-to-face, you might find this method is not for you.
5) Some robo-advisors are expensive.
Just like as it was mentioned under advantages, that robo advisors are inexpensive, that totally depends on what robo advisor service you are planning to take. While there are robo advisors that charge very less amount or do not charge any amount at all, there are some robo advisors that are very expensive.
If you have decided to get the service of a robo advisor, as the next step you might need to choose a robo advisor for you. The main facts to be considered are the service fees, services provided, and the level of the human interaction along with the computer algorithm.
You could do a comparison between the robo advisors of your choice and select the best robo advisor according to your personal investment profile.
To start investing, you need to open an investing account. You can either open a brokerage account or you can get the assistance from a robo advisor in this step. The decision of choosing an investment account must depend on a few facts, one being your investment goals.
Do you want easy access to your money? Or are you investing for a long term like for a retirement plan?
Standard Investment Accounts
A standard brokerage account may facilitate a variety of investments including stocks, bonds, mutual funds etc. Standard brokerage accounts are also known as taxable brokerage accounts. You can either open an individual taxable brokerage account or a joint taxable brokerage account.
The main difference would be that when you open an individual taxable brokerage account you solely own and be responsible for the tax that generates from that account while in a joint taxable brokerage account you may share the ownership and also the tax liability with the other person you share the account with.
You can open a joint taxable brokerage account with anyone without having any legal or business relationship with each other, However, to open a taxable brokerage account, one must be a legal adult who is older than 18 years..
And also there are no investment limits and you can withdraw money anytime you would prefer to.
Retirement accounts also facilitate a variety of investments similar to standard brokerage accounts but it differs from standard brokerage accounts by the way the taxes are calculated. Investments in retirement accounts are entitled to tax breaks, and the way you get entitled to the tax break differs depending on the retirement account you chose.
Through traditional Individual retirement accounts you get an upfront tax break and through a Roth Individual Retirement account (Roth IRA) you are entitled for a back-end-tax break.In addition to traditional IRAs and Roth IRAs there are other retirement savings accounts for small-business owners and self-employed individuals.
Education Accounts (529 plan)
An education account is simply a savings plan to cover your education expenses. The most famous education account is 529 savings account. Through a 529 savings account you can withdraw your money for educational expenses and the withdrawals are not taxable. On the other hand the Prepaid tuition plans facilitate locking down your money to pay tuition fees at a university.
Kids investment accounts are opened for minors and are maintained by the custodian of that minor. Once the minor reaches the age of maturity the account is transferred to him or her.
Until the minor reaches the age of maturity neither the custodian nor the minor is allowed to withdraw the money that was invested in the account.
- TD Ameritrade – Best for overall and beginners
- Charles Schwab
- Interactive Brokers
- Merrill Edge
- SoFi active investing
- Cindy Index
Now you are all set and have arrived at the final step. When you are investing as a rule of thumb, invest in businesses that you understand and also have some interest in. This does not mean that you need to do a complete analysis of the businesses you are planning to invest on.
But it is a must that you at least have some understanding of what this business is, where they operate their businesses, and so on. This way you can foresee the future of your investments to some extent.
The second important point to always keep in mind is to diversify your investments. Returns from your investments can vary depending on different market conditions. However, it is very rare that all the investment categories react to the market conditions in the same way.
That is why asset allocation is important. When you create an investment portfolio instead of putting all your money in one investment category, or stocks of one company you are more likely to survive any unfavorable market condition
With the thousands of stocks being available on stock market, it can be overwhelming to choose which stock to invest on. You should always analyze the businesses you are investing on beforehand, in order to make the best investment decisions.
Here is a list of Best growth stocks to buy now with the current status of the business world.,
If you are wondering how to buy stocks 0nline without a broker, it is not a complicated process. In fact, some companies listed in stock market encourages direct investment plans.
These direct investment plans allows investors to buy shares through their transfer agents, hence there is no need of getting the service from a stock broker. However, these direct investment plans also come with some charges.
Bonds are issued either as corporate bonds or by public companies to raise money and by investing on bonds you get regular payments on your investment and in addition to that, once the bond matures, you get back the initial amount you invested.
If you are planning to invest on bonds here is a list of Best Bonds To Invest in, However keep in mind that the information is based on past performance and future predictions, there might still be a chance to change the status of these bonds with time.
- Vanguard Total bond market index fund (BND)
- Vanguard intermediate – Term Corporate Bond Index Fund (LQD)
- iShares Core U.S. Aggregate Bond ETF (AGG)
- Eaton Vance Floating Rate Income Fund (EFT)
- iShares National Muni Bond ETF (MUB)