The stock market can seem like a daunting place, with more than 3,000 publicly-listed companies and hundreds of analysts all bustling to give their opinion. It's no wonder that many young investors find it hard to get started.
Luckily, it's never been easier to take control of your financial future, so this quick guide will give you a jargon-busting rundown of investing in stocks. In less than 5 minutes, you'll have all the knowledge you need to become a fully fledged investor.
Where do I start?
The easiest way to invest in stocks is through an online broker. It has never been easier to do this, with so many commission free options nowadays and with online setups. The process normally involves something similar to setting up a bank account, so you will likely need:
- Proof of identification.
- Proof of address.
- A bank account from which you can transfer funds.
Depending on the broker, this authentication should not take more than a couple of days, and once it's done, you can start investing right away. If you're not sure what broker to go with at first, you should do some research and see what you are looking for. Look for the following criteria:
- Minimum deposit amount: The minimum amount of money that you can add to your account at any given time. Eg. Some brokers may require that when making a deposit, it be no less than $10.
- Stock trade amount: How much you will pay per trade. Many services offer commission-free trading now, but others could have costs for every trade you make.
- Method of deposit: You need to be sure that the broker allows for wire transfer, debit/credit card transactions, PayPal (NASDAQ: PYPL), or whatever method you choose.
- Does it offer fractional shares?: Can you trade in a fraction of a share? For example, are you allowed to buy $50 worth of Microsoft (NASDAQ: MSFT) stock instead of an entire share? Most services now offer this.
Here at MyWallSt(r) we link our app to a Drivewealth brokerage account.
What should I invest in?
First of all, you probably need to know what a stock, or share is:
A share is a single unit of ownership in a company or financial asset.
Simple, right?
The problem now is knowing who you want to invest in. Over the past decade the market experienced its longest bull run ever and many investors in the likes of Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA), Amazon (NASDAQ: AMZN), and other tech stocks would have seen mighty gains. Before the economic crisis in 2008, everyone was investing in the likes of Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), and the other big banks.
And now, many investors will probably tell you to invest in 'at-home' stocks because of the coronavirus pandemic, such as Netflix (NASDAQ: NFLX), Peloton (NASDAQ: PTON), or Slack (NYSE: WORK). It's enough to confuse anyone.
That's why one of 'MyWallSt's 6 Golden Rules' is: Buy What You Believe In.
Investing is actually fun. You will go from being just a company's customer to actually owning a piece of that very same business. Rather than just buying a coffee from Starbucks or sneakers from Nike, you can own a piece of the thing you love. And remember, when your favorite companies grow, your investments grow with it.
So think of a company you know, love, and believe in, and ask yourself if it will still be relevant in 20 years time. If the answer is yes, then go with that. There's a few more things you'll also want to look at, but luckily, that's where we come in. We do the heavy lifting, so you can just sit back and watch your profits soar.
Different 'order' types
Understanding different types of orders can be important, especially when you get further into your investing journey. For now though, we'll keep it simple and give you the 4 most common order types.
1. Market Order
This means that the stock will be bought or sold immediately and happens during market open -- 09:30 am to 16:00 pm EST. The order will execute usually at or around the last-traded price.
2. Limit Order
This is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. For example, if an investor only wants to buy Google (NASDAQ: GOOG) stock at $1,500 per share, they could submit a limit order for this amount, and it will only be purchased once the price drops to that price.
Disclaimer: If your plan is to buy and hold for the long-term like we advocate here at MyWallSt, you don't really need to worry about the next two types of orders. But we wanted to to include so you understand what you're seeing on your brokerage order screen.
3. Stop-loss Order
Usually (not always, but mostly) you can set this to automate a sell if a stock you own is falling in order to limit your losses should a company's share price begin to tumble.
4. Buy-stop Order
This is entered at a stop price above the current market price to limit a loss or protect a profit on a stock that has been sold short. The same applies to a sell stop order.
What else do I need to know?
With this simple guide you now have the basics of investing down and it's now just about getting started. You may have some more questions though which we will happily answer here:
You should also set about planning how much you want to invest per month. With all this in mind, we created the OWN It project, which will help you take control of your financial future. If you wish to take a look, click the image below.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
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