Thinking about investing in the stock market? Not sure where to start? Here is a step by step guide to getting started in the stock market.
Step One: Evaluate Your Financial Situation
Before getting started in the stock market, it is important to determine whether or not you can really afford to invest in stocks. Start by looking at both your savings and your debts. If you have credit card debt or an auto loan, it would make no sense to invest in the stock market. The average annual stock market return is seven percent. If the interest rate you pay on a credit card or auto loan is any higher than that, you will be much better off paying down your debt versus investing in stocks.
Step Two: Decide What to Invest In
The next step involves deciding which stocks to invest in. You have two main options: straight out stocks or mutual funds. Stocks are shares of ownership in a company. A mutual fund is pooled money from a large group of investors that is invested in stocks, bonds, and other securities. Mutual funds are often the best choice for beginning investors because they are managed by someone else and are easy to invest in. Whatever investment option you choose, be sure to research your picks before you buy.
Step Three: Decide How Much to Invest
When you have chosen your investment vehicle, the final step is deciding how much to invest. A good rule of thumb is to not invest any more than you can reasonably afford to lose. No stock pick is guaranteed, which means it is just as easy to lose money as it is to make money. It is also important to think about diversification. Spreading around the money you can afford to invest is the safest way to get started in the stock market.