Not so long ago, stock investing was reserved for rich people, while the rest of us could only watch from the sidelines. Like so many other things, the Internet has democratized this as well and made it possible for everyone to reap the fruits of successful stock investments.
The current events and market instability have prompted even more people to start thinking about investing. However, this is something very few of us learned in school and we are forced to seek the knowledge we need on the Internet. Fortunately, there are plenty of online resources that can help us get started, but much information available quickly becomes outdated as market conditions and regulations change rapidly. This is our attempt at creating a comprehensive guide on how to start investing in stocks online in 2022.
Have a Goal
Many people start investing on the “monkey see monkey do” principle. Perhaps people they work with are into it or they have a cousin who won’t stop talking about his portfolio, it doesn’t really matter. The point is that it is so wrong that we won’t even bother explaining it. Before you even start thinking about buying your first share, you need to set a goal.
When all is said and then, there are two things you can accomplish by investing in stocks. You can try to either secure a retirement fund or try to get rich now. Without getting into the merits of either of these plans, both are legitimate, and the decision on which one to choose is entirely up to you and your wishes. We don’t say that accomplishing both at the same time is impossible, but chances are you don’t have the skills or funds to make it work. That is why it is better to choose one and stick to it. Which one you choose will have a dramatic impact on the way you approach investing and creating your portfolio.
Get Rich Now
This is what we usually refer to as short-term investing, where the goal is to make a maximum Return on Investment (ROI) in the shortest time frame possible. To achieve this, you will need to pay close attention to the market and choose stocks that will be profitable immediately. This is the essence of the “buy low sell high” principle and to make it work, you will need to invest not just money, but time as well.
Securing a Retirement
If you aren’t interested in your immediate ROI but want to plan for the future, things are a tad more relaxed. You will want to focus on shares that will prosper long-term and ignore the short-term dips. That also means you will have to resist the urge to sell off your portfolio when things get tough and it starts dipping. If you are confident that your shares will eventually be profitable, you need to stick with them through thick and thin.
Choosing the Right Online Broker
Before you start investing in stocks online, you will need to choose an online broker. There are several things to consider when making that decision. First, you will need to check the commissions. Depending on the type of investment vessel, online brokers charge different commissions on each transaction. The most common investment vessels are individual shares, ETFs, options, mutual funds, cryptocurrencies, and bonds. Check the commissions on the type of investment you want to make and compare them with other brokers.
Reliability is another important factor. Not all online brokers are reliable and some of them are outright scams. To avoid them, take a look at their history and read online reviews. This will eliminate the worst offenders and you can focus on brokers that have an exemplary track record. The infamous GameStop stock controversy was an excellent example of what happens when people give their trust to the wrong online stock brokers.
Before you can start trading, you will need to deposit some funds in your account. Deciding how much exactly will depend on your goals and liquidity, but also on the account minimum each online broker requests. Many of them don’t have an account minimum and you can deposit as little money as you want, but there are other things to consider as well. No account minimum won’t benefit you much if the platform has a minimum transaction policy enabled.
Account fees come next. Some brokers charge fees for inactive accounts, while most of them will waive them all together for traders that exceed a certain threshold.
Analytic tools can be a great help when deciding which stock to buy. All major online brokers have their in-house solutions, but not all of them are the same or offer the same functionality. Research them well and see which one is best suited for you.
If you are a beginner, you can also take a look ad what kind of educational materials a broker offers. Some of them have exceptional libraries, explaining in great detail every aspect of online stock trading that can help you a lot when starting. Even seasoned traders can benefit from these, as the market is always changing and new tools and options become available regularly.
Choose An Investing Account
Depending on how confident in your trading skills you are, or how much time you are ready to commit to online trading, you can choose between two types of investing accounts. For people who prefer a hands-on approach, there is a brokerage account. For those who can’t spend too much time babysitting their portfolio, brokers offer a robo-advisor account.
The Hands-on Approach
Opening an online brokerage account is probably the easiest and cheapest way of beginning your investing career. With it, you can either open an individual retirement account (IRA), or you can open a taxable brokerage account. If you have enough disposable income, you can try opening both.
The Passive Option
If you can’t afford to spend time on research, you can open a robo-advisor account. It is still cheaper than hiring an actual human broker to advise you, but it has obvious drawbacks. Regardless of how developed they are, algorithms guiding the process are far from perfect and you can end up with a piece of bad advice that can ruin your portfolio. As before, you will need to do some research into which online broker has the best track record with robo-advisors and decide whether that is an acceptable option for you.
Invest in Education
We already mentioned that not many of us have formal education on investing, so you will need to spend a considerable time reading up on the stock market. Chances are you will need to start from the basics, learning what stocks are and how they function. Then you can move on and learn the differences between various investment vessels and the pros and cons of each one. For instance, investing in stocks is vastly different from investing in mutual funds. With stocks, your ROI depends on a single company, while investing in mutual funds means you have bought a fraction of each stock the fund possesses. In essence, you have let the fund managers decide which stocks will perform best and you will share in their success or failure. Both of these approaches have their upsides and downsides and you need to educate yourself before you are ready to make that decision.
Set an Investment Budget and Stick to It
Setting a budget is a great way of limiting your exposure in case the worst happens. That way you can only stand to lose your investment and not your entire savings account. Many people fail to do this and end up throwing good money after bad in an effort to salvage at least a portion of their investment. In the end, they usually end up losing way more than intended. Don’t fall for the sunken cost fallacy, as it will only lead to your ruin. Once your budget is set, stick to it no matter what. This is a key to minimizing your losses in case the unimaginable happens.
Create an Account and Start Trading
Once you have finished the vetting process and selected the best online broker, you will need to create an account. Make sure you have provided all the necessary documents for the verification process. As soon as you have deposited some funds into your account, you can start investing in stocks online. Select the shares you want to buy, making sure you have done your due diligence and researched them well. Follow the market news considering not only the companies you have invested in but the entire sector. This will provide you with a more complete picture of how things are shaping up and what you can expect in the future.
Making a decision to start investing in stocks online is a huge step towards financial independence and can change your life dramatically. To be able to fully exploit this decision, you need to follow advice we gave in this article, or risk losing your money.