Want to start investing in stocks but you’re not sure how?
Stock market investing for beginners is intimidating, but it might also be one of the best financial decisions you make.
While the world of investing for beginners seems scary, you landed here for a reason.
You could be binge-watching Netflix but you choose to look for new financial opportunities by educating yourself. Kudo to you!
Here are 6 powerful steps to make money investing for beginners
Before we dig into it, whatever beliefs you hold about investing, I want you to take luck out of it.
Think of life as being made up of a series of opportunities. All you have to do is be ready to see and embrace those opportunities in order to achieve your desires.
This article serves as a tool to overcome challenges you might have come across trying to invest for the first time. It brings down barriers so that you may seek those opportunities and get to where you want to be.
Disclosure: This is general advice, and you should seek help from your own professional as situations can vary. Please note this post contains affiliate links. Please read my affiliate disclaimer for more information.
Step 1 – Get clear on your goals
First thing is first, focus on your short and long-term goals.
Here are a few questions to get the ball rolling:
- Why do I want to start investing?
- What do my savings look like and how much do I need to start investing?
- When will I need to use the money I’ve invested?
- Am I committed to learning about investing and picking the right stocks even if just during your spare time?
At first glance, some of this stuff may not seem relevant but having a clear understanding of why will help you find your path when things go south (yup, they likely will at some point).
One big mistake I see new investors make is forgetting why they started stock market investing in the first place. They lose perspective and start behaving irrationally which leads them to making mistakes, losing money and eventually quitting.
Let’s focus on that why.
Why do I want to start investing?
If your answer is “to be filthy rich” or “to make money” then you’ll have to dig a little deeper. Why do you want more money? Is it to buy a home? Retire securely and stress-free? Send your kids to college? Quit your 9-5?
The point is, all of us want to be rich but the reason why is what drives us to that goal.
Your why is your own. It is very personal and it serves as a reminder when you feel like quitting that you shouldn’t cave and take the easy way out.
If you are going through hell, keep going – Winston Churchill
What do my savings look like and how much do I need to start investing?
It takes money to make money. This is an undeniable reality but just how much does it take?
You might be surprised by just how little money you need to get started.
If you’ve ever felt like you don’t have enough to invest then think again! Most online brokers will ask for a minimum deposit of $1,000, but you can start with less than $100. While you need some cash, don’t let that hold you back.
When will I need to use the money I’ve invested?
The stock market has historically gone through highs and lows. Unless the world, the economy and markets as we know them completely change, there will continue to be periods of great markets and bad ones.
While recessions hurt most investors, the good news is they don’t generally last as long as market highs.
Why is that important for you to know?
If you’re planning on paying for your wedding next year, you’re probably better off holding onto that cash. Don’t try to “make a quick buck” on the market, you’ll more likely than not end up with regret.
Nobody knows what will happen in a year from now but one thing is certain, in the long run, you will end up making money.
How can I say that with so much confidence?
The stock market has historically never lost money over a 10+ year period.
That means the longer you stay in the market, the better and safer it is.
Keep in mind, this doesn’t apply to individual stocks; it applies to are index funds. You can read up on what index funds are and how they are different from stocks HERE.
Am I committed to learning about the stock market?
Success on the market comes from continually learning about and researching the stock market.
The more you learn about what you are doing the more likely you are to earn.
Risk comes from not knowing what you are doing – Warren Buffett
Make it your responsibility to learn as much as you can about the stock market and how to successfully develop a strategy and learn from your mistakes.
You have to be willing to put at least a couple hours a week into researching and learning. If you prefer to binge watch Netflix, then investing is not for you.
Step 2 – Just do it
No buts, no maybes, no excuses. You have to just get out of your comfort zone and do it. Not tomorrow, not next week or next month, do it NOW.
There’s no time like the present. Stop dreaming about the endless possibilities that having passive income can bring and start making it happen.
The best thing you can do right now is to find a broker and open an account. Much like you need a car dealership to buy a car, you need a broker to buy stocks.
There are two main types of brokerage firms you should know about:
- Discount broker – for DIY online investing (the upside being lower fees)
- Full-service broker – provides an investment plan based on your personal needs and goals including periodic reviews (the downside is it costs more)
When researching for a broker, you’ll want to keep the following in mind:
- Fees – brokers generally charge a fee each time you buy or sell. While they seem small on a transaction by transaction basis, they can add up in a big way
- Easy of use – a simple easy to use interface is always a bonus
- Minimum balance – depending on how much you’re looking to get started with, make sure you can meet the minimum deposit
- Activity/Low funds fees – you may be charged maintenance fees if you don’t meet the minimum or trade regularly. Be aware of these fees so that you can avoid them
Here is a list of brokers I’ve tried or have heard great things about
FYI: none of the bullets below contain affiliate links. I wanted to give you the very best advice even if it meant forgoing my commission. I recommend these companies over the ones I could have received a commission on because I love and trust them.
- Robinhood – this is the new kid on the block that’s shaking things up for the old school brokers. It’s a free trading app for stocks, options, ETFs and cryptocurrency. The best part is there are no commissions or fees and no minimum investment. The app is really easy to use and only takes a few minutes to set up. Where Robinhood falls short is it does not support mutual funds or bonds and has more limited investment options than some of its competitors.
- Fidelity Investments – this one is known for its mutual funds but it doesn’t come short on any of its other investments. While the commission is more than with Robinhood, the cost is reasonably set at $4.95 per transaction. As with Robinhood, there is no minimum investment required. Fidelity is best for retirement investors and has amazing research tools.
- TD Ameritrade – with no minimum investment and exceptional free features (such as research and data, investor educations and support, portfolio building guidance and an awesome trading simulator), it’s no wonder TD Ameritrade has kept its reputation for so long. It’s a great platform for a beginning investor with tons of investing options but each stock trade will cost you $6.95.
Step 3 – Educate yourself
We touched on learning earlier but this truly is a critical step if you want to become a successful investor.
It all boils down to educating yourself and researching for great stocks.
That may sound daunting but I’m sure if we could ask 3-year old you about what learning to walk was like you’d probably agree it was really challenging.
The reality is learning new things is challenging and investing is no different. Where most people get caught up is they let it become more challenging than it should. But really, it can be as simple and complex as you’d like it to be.
Don’t go into the market blindly following the advice of others. If that’s your strategy, then let me save you a ton of heartache by saying that you will find yourself feeling defeated. Not to mention you will lose money.
Investors who make money on the market spend time learning about investing, researching stocks and understanding them.
But don’t let knowing nothing about the stock market deter you. I have a secret recipe for picking stocks that I use personally. Click HERE to access the training for FREE.
If you want to go from “I don’t know what I’m doing” to “I’ve got this” then you need to educate yourself.
ONLY YOU know what’s better for you, only YOU can decide which stocks are a good fit for your strategy and are capable of helping you reach your goals.
Step 4 – Buy what you know
The easiest way to start researching for great stocks is to start with companies that you already know or industries you already understand.
If you feel like you don’t know a whole lot, think again.
Do you have a Facebook account? Do you know about Apple products? Have you ever heard about Harley-Davidson motorcycles? Have you gotten a coffee a Starbucks? Do you watch Netflix?
All of those companies are traded in the stock market! Trust me, you know more than you think.
As a consumer, you have a ton of insight into what products/services are good or bad.
Understanding how companies impact you every day is the first step in picking stocks.
Buy what you know – Peter Lynch
To put that into perspective, did you prefer walking to Blockbusters for a movie (that may or may not be available) or simply ordering it from Netflix with the click of a button? The answer to that one should be pretty clear.
Think about companies that you love or industries you understand. How do they make money? What makes them special? Why are they better than their competitors?
I would not recommend you make investment decisions without having some understanding or experience with the company or industry.
If you can’t explain to a 5-year-old in a few minutes what a company does and how it makes money without losing their attention, then you probably shouldn’t buy their stock.
Step 5 – Do your homework
I’m going to share with you some of the strategies that I use personally and teach in the Freedom Framework Program.
Read Financial Statements
The sole purpose of the existence of a company is to make money. If a company can’t make money, it will eventually go bankrupt.
Financial statements are like a company’s bill of health.
If you’ve never looked at financials, it can seem like a scary amount of information. Rest assured though, if you force yourself to read through, you’ll find that they are actually simple to read.
Here are a few examples of things you want to look for:
- Are they making money (net income or net loss)?
- Is their revenue increasing?
- What is happening with the debt? Is it coming due soon and will they be able to pay it based on how much cash they have?
A good company is one that is slowly but surely making more money (revenue and profit) year to year and that doesn’t have too much debt or has enough cash to cover it’s debt.
As a general tip, you want to read the entire financials.
Numbers individually won’t necessarily mean much but as a whole, they tell a story.
Think of it as only reading the first page of a book. While you get a few sentences in, you don’t get the whole story. The same goes for financial statements. If you only look at the first page, you are probably not going to see the big picture.
Look at Trends
The financial statements will paint a picture of what’s happening on the inside. Once you’ve got that covered, you still need to understand what’s going on outside.
Here are a few things you should keep in mind:
- Are new laws coming into effect? Would a tax or other regulatory change impact the company?
- Is it difficult for new competitors to emerge? How likely are they to overtake the market?
- Does the industry change slowly? A fast-paced industry might mean companies have shorter life spans and become obsolete sooner. Tech, for example, tends to require constant innovation. If companies cannot innovate quickly, they often fall off the grid. Remember Blackberry?
- How do consumer trends impact a company? For example, environmentally friendly is currently trending. When looking at different alternatives in the same industry, it might mean favoring green initiatives. Companies (much like people) are more or less likable. Give preference those which are more likely to be popular.
Step 6 – Monitor your investments
The next step is to regularly track your investments.
This is important because you may eventually have to change what you’ve invested in, put more money towards your investments, and so on.
The key here is to not go crazy.
You don’t want to check your investments every hour of the day. It won’t help you and small changes in the stock market most likely won’t matter.
One great platform I use to track my money and investments is Personal Capital.
It is a FREE service that allows you to sync all your financial accounts into one location. That means, budgeting, 401(k) analyzer, display of upcoming bills, asset allocation target, investment portfolio tracker and many more.
It’s like Mint but better. Click here to set up your FREE Personal Capital account.
What if your stock goes down?
It will inevitably happen and you will freak out.
Now that we’ve gotten that harsh reality out of the way, let’s focus on how you can lose as little as possible.
You’re going to want to set FIRM loss cutting rules.
Decide exactly how much money you are comfortable losing.
Personally, I’m fine with losing 7% of what I put in. That means that if I bought a $100 stock and it drops to $93, I sell without hesitation and take my $7 loss.
That 7% is my insurance. I know that I will never lose more than $7 on $100. If the stock rallies back then I can buy it again but I will NOT wait around as it tanks hoping it goes back up.
Think of it this way; if you bought fire insurance on your home and it did not burn down. Would you be disappointed? Would you think you made a poor financial decision? Of course not.
You never know whether your house will burn down or not (hopefully it never does) but just in case, you have insurance. That insurance is your way of making sure you never lose big.
Setting firm loss cutting rules is like getting insurance to protect yourself against potentially devastating losses.
We are emotional creatures and we’ve come so far by paying attention to our survival instincts.
They have helped us find food, shelter and run from predators. But in the 21st century, we are a bit luckier than 5000 years ago.
Unfortunately, that survival instinct has stuck around.
It emerges when we are depressed, anxious or afraid.
Depression is about living in the past. We have to learn from previous experiences to avoid repeating them, but sometimes we get stuck in that moment.
Anxiety is about living in the future. “Will I have enough money to pay rent?” or “OMG I bought this stock I hope it goes up”.
If you have thoughts like this going through your head then you have to identify them and rewire your brain.
I hope this epic post has helped you figure out the first steps to stock market investing for beginners.
Now get out of your comfort zone and start doing things you have never done!
Learn more about my strategy and how to invest in the stock market, by checking out my FREE 10 Ingredient Recipe to successfully trading stocks HERE. It’s a great starting place for regular people (with ZERO experience) to get the confidence to pick winning stocks and avoid losing their money.
You might also want to check out:
- How to invest in stocks: 3 No-brainer hacks for newbie investors
- How to start investing with less than $100 and ZERO overwhelm
Do you have any other steps to add to make money investing for beginners?