How to Start Investing in the Stock Market. With $5,000 and these tips you can get started.
#1- Open a brokerage account
The first step to start investing is opening a brokerage account. This will allow you to start trading with your own money. Etrade or Scottrade are good ones because they charge small commissions (anything under $10 is good). It's important to note the commission fee because it'll take away from your returns. Fill out whatever forms you need and transfer some money in to get started...
#2- Buy 2 reliable growth dividend stocks
You don't want to put all your eggs in one basket but you also want to invest enough in each stock so that you can actually make some money. $2000 is a good amount and since you've only got 5k that's good enough to buy two stocks. Pick two that have a good dividend rate. Think of these as your base, pick companies you like, that you use everyday, and that have a future.
To help diversify your portfolio you should pick stocks: -In different sectors -That have consistently increased their dividend payout for years -Companies that can maintain the increases and current payouts -Mature companies
#3- Set up an automatic investment plan (start small, then increase steadily)
One of the main things about investing is growing your investments. That means putting more and more money into them. After all you should feel comfortable with what you're investing in. If you add money consistently in to the account you'll be able to diversify more and invest in other types of vehicles. It's easier if you have a job that pays you straight into your bank account. Transfer some funds into your savings and some into your brokerage account. Remember to spend some of that money because after all, life is all about fun.
TIPS: -Start as early as possible with the transfers -Do it automatically so it’s not a “choice” between spending or saving -Increase the amount over time as your income increases
#4- Reinvest those dividends (they will grow)
Companies that make money call that it earnings. When they reinvest it into the business its called retained earnings. You want to apply the same principle. The dividends that you make from those first two stocks you picked should be reinvested into something else that you like. With dividends and the money you've been transferring, you should start building steadily.
#5- Every time you get $2000, buy new shares
It's time to pick another winner. Remember you want to diversify your portfolio. Pick a different company, sector, industry, ...The idea here is to enter different markets. Economics is connected globally but the best thing you can do to reduce risk is spread yourself out. Think banking, automotive, technology, healthcare, biotech, consumer products...these are all different areas you can invest in. And we are just getting started!
Do your research and see what investment is not only best opportunity but also the best for your portfolio.
#6- Review portfolio at least quarterly
If you're like me you'll be checking your stocks everyday but you cannot do that. I repeat DO NOT CHECK YOUR STOCKS EVERYDAY. We are investing long term here and stocks go up and down. You will lose value some days but if you come back once every three months you will stay positive. The idea here is to make money over time, not to buy and sell everyday. Unless you like emotional rollercoasters keep calm and let your money work for you, it takes time
#7- Increase the amount over time as your income increases
No explaining required. This is a key. As your income increases, be sure to put a higher amount into your portfolio, you will not even notice the difference but your portfolio will grow much faster.
In conclusion, no matter how old you are or what your income is, you can build such a portfolio if you apply the proper methodology and discipline. Over the years, it will increase and can make a significant difference in your lifestyle.
*legally, I do not hold myself responsible for any losses you may have, decisions you make, and whatever else the SEC wants me to say..*
Sources of Information
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