How To Start Investing in The Stock Market

Many people know the importance of investing but never actually do it!

I must admit, there was a time when the topic of investing was very confusing and overwhelming for me. The learning curve with all the different financial terms and what they meant were steep. It took several talks with my financial advisor, my husband breaking things down in detail and me listening to some great podcasts to finally get a good understanding of it.

Like most people, my first experience with investing was through a retirement account that I have with Edward Jones. Once I read upon the subject of investing (the most helpful being JL Collins’ The Simple Path To Wealth), listened to podcasts on the topic and consulted with the experts, I graduated from being a rookie and started investing with Vanguard in their VTSAX (Admiral Shares). You can see some of my recommended books on investing here and learn more about Vanguard’s VTSAX here.

Investing requires a mindset shift, and you should look to start by investing in a retirement plan, followed perhaps by investing in the stock market. But how do you even get started investing in the stock market? I will give an overview of how to get started and for the sake of this article let’s get some definitions down:

Investing: Putting money into a vehicle with the goal of receiving a return down the line (growth). In most cases, you plan for little involvement on your part once you’ve invested the money.

Stocks - A stock is part ownership of a company. They are also called shares or equities and the more you own the bigger your ownership stake in the company is.

Bonds - A bond is when you loan money to a company or the government who in turn pay you back in full with interest.

Mutual Funds - A mutual fund is a pool or compilation of funds from a group of investors set up for the purpose of buying security like stocks, bonds, etc.

Index Funds - An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500).

Exchange Traded Funds (ETFs) - These are similar to index funds however, they can actively be traded throughout the day at the current market price (you'll pay commission fees as a result) unlike mutual funds and index funds that are traded at the end of the day, and at the market's closing price.

Brokerage Firm - A brokerage firm is a financial institution that manages or facilitates the buying and selling of securities (different kinds of investments e.g. stocks, bonds, etc) between buyers and sellers. They typically charge commission fees on trades and can provide you with up-to-date research, market analysis and pricing information on various securities. Examples of brokerage firms in the US include Vanguard, Fidelity, Charles Schwab, etc.

How To Start investing

Investing can change your financial future for the better. You don’t need a lot of money to start investing. In some cases, you only need a few dollars to get started. Of course, you might have a goal of increasing your investments long-term. But don’t let limited resources stop you from building your long-term wealth.

Try a Robo-Advisor
A robo-advisor is the term often used to refer to digital platforms for investing and is essentially a virtual financial advisor. With the use of algorithms and technologies, it eliminates the need for a human financial advisor and is a more hands-off approach. Rabo-Advisors are marketed to millennial as a digital solution for the often intimidating process of investing. You’re asked some questions online and based on your answers it provides automated financial management services and tailor your investment recommendations based on your goals.
The benefit of using a robo-advisor is that the fees are typically much lower, even though you are getting customized portfolio recommendations. Most robo-advisory firms offer low minimum investment requirements and take care of portfolio rebalancing automatically.
If you are interested in trying a robo-advisor, some popular ones are Acorns, Robinhood or Betterment.
- Micro-Investing
  - There’s an app for that! Just like robo-advisors, micro-investing apps offer a variety of tools and ways in which you can be investing. Micro-investing apps are marketed towards millennials and young, rookie investors and was built around the idea of helping people get into investing with as little as a few dollars. Some popular micro-investing apps include:
    - Acorns - It is simple and is perfect for the true beginner looking to get help building a well-diversified portfolio. You can choose from among five portfolios, all of which are invested in ETFs from well-known investment management companies like Vanguard. It costs as little as $1 per month for accounts under $1 million, or free for college students.
    - Robinhood - Typically attractive to those looking to do individual stock picking and even dabble in cryptocurrency and options trading. Trading is commission free, but there are fees charged by SEC and FINRA.
    - Stash - Great for beginners who want to be a bit more hands on about picking investments or has specific preferences on the types of companies they invest in. They offer access to more than one hundred investments, including ETFs and individual stocks. It costs $1 per month with no commission on accounts under $5000 for Stash Invest and $2 per month for Stash Retire.
Seek out a Brokerage Account
There are many investment services available on the market today. Each offers different services and charges different fees. In some situations, you may want to buy and sell stocks on a regular basis. These transactions can add up quickly at some brokerage firms. In other situations, you might choose an index fund with fees built-in. Either way, you'll want to find a brokerage account that minimizes fees for your investment strategy.

Decide What Kind of Account You Want To Open
- The type of account you open will depend on the reason you’re investing in the first place. Most times when one is investing they are doing so for a medium-long term goal.
Decide Which Brokerage Should You Use
- You have many options when it comes to picking a brokerage firm. Consider a hands on versus a hands off approach (depending on how comfortable you currently are with investing).
- Consider the minimums for opening an account. Many, but not all brokerage firms will have a minimum initial investment in order to open an account or invest in certain funds. These minimums vary, and therefore can have a huge impact on which institution you pick. For example, my very first investment was in Vanguards VTSAX with a minimum required investment of $10,000. If you are not in a position to invest that amount at the moment you have several options:
  - You can opt to choose a different brokerage firm
  - Search and see if another comparable fund at the same brokerage has a lower initial investment requirement
  - Invest at a different brokerage and transfer your funds after you’ve met the investment minimum at the brokerage you want
  - Keep saving until you hit the minimum
  - See if the exchange-traded fund (ETF) version is cheaper than the mutual fund version, sometimes it is.
- Determine what the brokerage firm’s fees will be.
- Determine whether you want to go with a Full Service Brokerage Firm versus Discount Brokerage Firms. The main difference is the the full service firm will have an advisor helping you build and manage your portfolio, but you will pay higher fees. You take a more DIY approach when going with a discount brokerage firm and therefore will save more in fees. Plus, Discount brokerage firms may have minimum initial investments, often between $1000 to $3000. Some popular discount brokerages include Vanguard, Fidelity, Charles Schwab, TD Ameritrade, Ally Invest, etc.
Pick Your Investments
- When picking your investments consider your goals, risk tolerance, time horizon and whether you want it to be actively or passively managed. Keep in mind that you will pay more in fees for an actively managed account. You will also need to diversify as you build your portfolio so as to not put all your eggs in one basket. For example, investing in mutual, index, or ETFs gives you exposure to a variety of sectors and companies, and is a good first step.

Investing can be a confusing topic but it doesn’t have to be once you understand a few basics. You can start with a robo-advisor or a micro-investing app to get your feet wet and level up to a brokerage firm when you feel you are more comfortable.

This is Part III of The Investing Series. Click here for Part II and Part I

Our investing series will continue in our next article and will feature an Interview with a Wealth Management expert from a popular Brokerage Firm. Sign up below to receive the Investing Series directly to your inbox: