As the COVID-19 pandemic has ravaged the world, the economy has seemingly paralleled in doom. You may have heard an uptick in conversation about the stock market and opportunities to cheaply invest in major companies like Tesla and Apple. If you’re considering starting to invest, here are a few things I wish I had known before hitting “buy.”
- Everyone can do it (and from home!)
-
Despite being an economics major, I’ll admit I held a stereotypical view of day traders. I pictured a corrupt Leonardo DiCaprio from The Wolf of Wall Street being a sleazy stockbroker in the financial district. Well, this couldn’t be further from the truth for the majority of investors.
Practically anyone can set up a discount brokerage account from home. While the Robinhood app gained notoriety for its easy access, college-aged customers, and commission-free trading, there are many brokers to choose from. Personally, I trade through Charles Schwab, which provides wonderful reports from reputable financial firms Morningstar and Argus to help you make informed trading decisions. Other brokers that my peers use include Merrill Edge and Fidelity.
To get started, one usually has to provide basic personal and payment information. You will need to submit your social security number as well as an estimate of your income. Money for investments can be wired in through an existing online banking system, or you can send it in the old-fashioned way via check!
After setting up your account, expect a couple days of delay before you can begin. Most discount brokers have both an online platform and an app for your mobile phone so that you can check in on your investments any time of the day!
- It’s basically a large gamble
-
For every big win there is a big loss. I know that this outlook sounds really pessimistic, but it’s the reality you need to accept before you put any real money in. Last month I felt so confident owning multiple shares of Apple stock before the 4-1 split, but my investments came crashing down the day after the close.
Just trust that every downcycle is followed by an upcycle. It takes time and patience, and you will suffer some losses. Before investing in any company, mentally play a game with yourself as if there was real money on the line. Are you comfortable losing all or more than what you put in? If you can’t confidently say yes, it may not be time to go in for that stock.
If the prospect of investing large sums of money into a single company is frightening (especially for blue chip stocks valued multiple hundreds of dollars), investing in fractional shares may be of interest to you. Charles Scwhab allows its users to invest in S&P 500 companies through stock slices, wherein you could own, say, 40 percent of a share for a fraction of the price. You can also elect to reinvest the dividends (reward payments to stockholders) from your stocks, which could result in possession of fractional shares.
- Don’t take your friends’ advice
-
Joe from your Finance 101 class is going to tell you to invest in gold. Or his favorite carbonated alcoholic seltzer that he drinks during morning lectures. And while some of your friends may have the best of intentions — and many of them are very bright — you should never invest in something just because Joe says it’s going to do well.
At the end of the day, it’s your money and your loss if it goes awry. Unfortunately, most of your friends are also going to be beginning investors, and they may not match your level of comfort with risk. You can heed advice from your pals, but don’t rely on it.
If you want a second word on your investment plans, there are reputable brokers at most major banks. Human brokers do charge commission and fees, but if you really are a fish out of water and don’t know where to start, they may give you a leg up since they study the market all day. It also doesn’t hurt to talk to your parents or grandparents, especially if they have any business or financial experience. They will have your best interests at heart and have been around for long enough to have seen how certain companies fare in the market.
- Read into it
-
What’s a bond? Mutual fund? ETF? Dividends? Small-, mid-, and large-cap? Just like any other interest one could have, investing has a lot of parts. It’s hard to just jump into something if you don’t have a basic idea of what is going on.
I highly recommend reading an introductory book on investing. Thankfully, in this day and age there are thousands of books available at our fingertips at any local bookstore or online. I personally read The Everything Guide to Investing in Your 20s and 30s by Joe Duarte. I found it to be a very approachable text, especially for someone who had never looked into trading before. I also skimmed through Investing All-In-One for Dummies by Eric Tyson. This is a great volume; however, it is very dense and may be more overwhelming for true beginners.
You can also learn a lot from online sources. Investopedia is a godsend for beginning investors as well as pretty much any economics student. Yahoo! Finance is a great place to locate articles, chase the market, and view lists of the top and worst-performing stocks of the day.
- Pick companies that you believe in
-
There are a lot of reasons you may consider investing in a company. Maybe you see it all over the news, or you have a product from them, or you support it for ethical reasons. It is in your best interest to buy into companies that you have interest in or understand to some degree.
For example, there is no reason for me to invest in commodities because I don’t understand that market. However, for me, investing in Apple, Target, or Lululemon makes sense because these are companies and brands that I follow and know about. I probably have a basic understanding of the business model as well as the values of the company. Having faith in the companies you invest in will make the process easier because you don’t have to worry so much about throwing your money into space.
- Diversify your portfolio
-
This is probably the #1 tip that any investor will tell you from the get-go. But what does it mean? It means don’t throw all your eggs in the same basket. Let’s say you only invest in technology. That’s great when the market for technology is booming… but what happens when it crashes? Suddenly, all of your investments will be in the red. Instead, seek to get a little bit of everything.
- Assess how much of a risk-taker you are
-
Personally, I’m a low-risk kind of a gal. I’m not the one that is going to be trading down to the last minute. I like to find stocks that are reliable, with strong performance, and favorable equity ratings. This is not everyone’s cup of tea. I have a bold friend who frequently goes all in while trading. They understand the risk associated with their trading style, and they enjoy it. For me, I don’t want to be pulling my hair out on a daily basis.
Hopefully this advice will guide you as you begin your investment journey. I am not a professional investor by any means, but if you were looking for a way to find out more about investing before doing more research on your own, I hope this article was able to help!