How To Trade Stocks for Beginners

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Thanks to technology and readily available educational resources, it has never been easier to start investing. Here are five simple steps you can take to get started:

First: Determine your investing approach. Most people will need to decide whether they want a do-it-yourself approach or whether they’d like to outsource it to an automated platform or an even more hands-on approach with a financial advisor. Additionally, you’ll need to consider your time horizon before investing. Some investors want to invest for long-term goals, while others prefer to trade on a daily or weekly basis and have more short-term holding periods. Your time horizon is a big factor in how high or low your risk appetite may be.

Second: Decide how much you will invest. How much you invest depends entirely on your budget and financial goals. Many financial experts recommend saving between 10 to 15 percent of your after-tax annual income either in a savings account or long-term investment account. With that guideline in mind, you can decide to invest whatever amount is comfortable for you. The most important thing is to get started, no matter the amount.

Third: Open an investment account. There are a variety of options available when it comes to investment accounts. You can use a traditional full-service brokerage firm that will provide additional services beyond just buying and selling securities, such as investment advice, wealth management, and estate planning. But this might not be accessible for new investors because they often require substantial minimum balances. Another option is to do it yourself through an online brokerage, such as an app-based platform. This option can often be ideal for beginners. You can also look into an automated approach through a robo-advisor offering where you answer a questionnaire on your risk appetite and goals and are placed into an appropriate investment model based on your responses. Make sure to research and compare costs and features between each account option.

Fourth: Choose your investments. If you opt for the do-it-yourself approach, now is the time when you choose what to put in your portfolio. Before investing in stocks, be sure to do an adequate amount of research on the individual company to understand the risks and opportunities, including the current valuation of the stock. One of the most common metrics used to evaluate a stock’s value is its price-to-earnings (P/E) ratio. This can be compared to other stocks in the same industry, the stock’s own historical value, or other stocks in your portfolio.

Fifth: Continue building your portfolio. After you’ve decided what stocks to invest in, you want to continue building a portfolio that will help you meet your financial goals. As you add or remove securities, keep diversification principles in mind and be sure to limit concentrated exposures. Spreading your allocations among different sectors and stocks can help make the portfolio more durable through market cycles. Setting up a recurring investment can also help make this a part of your regular financial routine.