When it comes to building wealth, few avenues are as effective as investing in the stock market. However, just because investing in the market is generally effective, it doesn’t mean that everyone knows where to start. Here are some tips that can help those who are unfamiliar with investing get started.
Open an Account
The first step toward investing in the stock market is actually opening an account. It’s possible to open an investment account at a local bank, but it’s more likely that opening an account with an online brokerage will be a better idea. The decision should be tied to the fees that a brokerage charges. The lower the transaction or management fees a brokerage charges, the more of an investment actually goes toward buying stocks. Once an account is open, it’s possible to move money into the account, and that money will go toward making purchases of stock in great companies.
Look for Appropriate Investments
A low stock price does not necessarily indicate a bad investment, nor does a high price indicate a good one. Buying a quality company at a good price is the way to make money through stocks. Companies with growing revenues and net incomes will likely be better investments than those that have stagnating growth in these two important metrics. This information will be available in the company’s quarterly and annual reports.
Some level of diversification is recommended. Investors can achieve diversification through buying shares from more than one company within a given sector of the economy, or they can achieve it by buying a number of companies across multiple sectors. The easiest way to diversify is through the purchase of a mutual fund or an index fund that automatically provides exposure to a number of different companies through a single purchase.
Once the first investment is made, returns can come in a variety of ways. Companies may decide to return some profit to their investors through the payment of dividends. They can also buy back some of the shares that are outstanding, which will frequently lead to a higher stock price. Companies that grow without paying dividends or buying back shares can also see price appreciation. Those who continue to put money toward their successful investments will have the new capital rolled into the money that’s already started to grow to build an impressive level of wealth given enough time. The key is to continue investing in quality companies for decades into the future.