Investing: Quick Start Guide for Beginners

Do you love the convenience of opening and managing your investment accounts online? If so, raise your hand. Whether it’s via a web page or through an app, we’re guessing that, if you’re playing along, your hand is in the air.

 

With the ease and availability of technology, investing has become increasingly accessible over the past decade. This access has made more people than ever jump into the investment game and become interested in growing their portfolio. Of course, it also helps that saving for retirement, and financial planning in general, is discussed at a much younger age.

 

The stock market can seem like an intimidating place for unseasoned investors. Mountain America Credit Union is here to provide some basics. Take a look at what we have to offer and then, if you still have questions, make an appointment with one of our wealth advisors to discuss your situation.

 

How to start investing in stocks

First, you’ll need a brokerage account to access investments in the stock market. Beginner investors have a couple of options—choose a guided wealth portfolio (GWP), this is an online platform that combines the benefits of a personal financial advisor with the convenience of automated investing technology, or opt for a self-serve option like a robo-advisor or automatic micro-investment tool.

 

How much money do I need to start investing?

Next, it’s time to fund your account. How much depends on your age, financial goals and risk tolerance. You may already have an idea of how much you’re willing to throw into the ring. If not, have a discussion with a trusted friend, financial advisor or even an app to help guide you.

 

If you would prefer to receive guidance from a professional, consider working with a GWP. You’ll need a minimum initial investment of $5,000. These accounts are fully supported by a team of personal financial advisors who will provide you with an investment roadmap based on your goals, time horizon and risk preferences, and your portfolio is monitored daily.

 

If you prefer the DIY approach, venture into the shallow waters with an automatic micro-investment tool—some require as little as $5 to get started. With this option, you can choose your risk tolerance and personally monitor and manage the account.

 

Not quite sure where you fall? Start with the automatic version. This will give you an opportunity to get comfortable making your own investments while learning to interpret what you see happening in the stock market. If you feel you’re not doing a good job or you just don’t have the time to do it right, then consider moving over to a GWP.

 

How do I handle market volatility?

It’s normal for stocks to experience price fluctuations. This is typically caused by uncertainty in the markets and is usually short-lived. The key is to strategize for these rough times.

 

While volatility can certainly be concerning, especially as a beginner, it’s a very normal part of the investing experience. One way to minimize this concern is to buy stock in companies that have a consistent growth record over a long period of time. Because they have survived many price swings over the years, it’s easier to trust that these stocks will continue to produce long-term revenue.

 

Younger investors, like those belonging to Gen Z, can capitalize on market volatility because they have more time before retirement. So, if the market takes a dip, they can wait for the recovery to happen.

 

Volatility isn’t always a bad thing. If you have been eyeing a particularly pricy stock and the market slips, it may now be in your price range. Or, if you already own the stock and have time to wait out the recovery, this may be your opportunity to pick up more at a lower price. 

 

5 golden rules to choose the right stocks

Following these rules won’t guarantee huge returns. But if you choose a stock that checks these boxes, it may be a winner!

 

1. Invest in companies that are industry leaders. Whether you’re interested in mutual funds or individual stocks in entertainment, natural gas, tech or another industry, companies like Amazon, Apple, Disney and McDonald’s have a strong track record and consistently put out new products and services that are well-received by the public. Again, there’s no guarantee that this will continue, but it’s a strong indicator of ongoing success.
    

2. Invest in businesses you understand. There’s a spectrum of understanding when it comes to investing. For example, most of us have a general understanding of the companies mentioned above but if you work (or have worked) in one of these industries, your knowledge level is likely higher. Choosing stocks or funds in this category could improve your chances of success.

    

   On the other side of the spectrum—companies you barely understand or don’t understand at all may look promising, but these stocks may not be a good choice. Their product may be experimental or there may be too many unknowns. The safe play is to avoid these stocks until the company has some sort of breakthrough and you understand exactly how they make money. The key here is research. Follow the individual stocks for a while and look at the history. Read up on the industry itself to learn more.
    

3. Diversify. Yes, you should understand the industries you invest in. It’s also important not to limit your investments too much. No matter how well a particular industry, or individual stock, has performed, it’s still subject to market volatility. Spread your investments around. If you plan to hold, say, eight different stocks, make sure they are diversified across four or five industries.
    

4. Go for the solid track record. Everyone wants to buy in for pennies and then watch the stock soar in a short amount of time. That’s the dream, right? This scenario happens from time to time, but for every dream come true, there are thousands of duds. Choose a company that has a proven track record and whose revenues and profits have grown consistently.
    

5. Dividends matter. Dividends are regular payments of profit made to investors who own a company’s stock. Not all stocks pay dividends. Choosing stocks that do is an attractive option because they provide an immediate return on investment. Also, a company that consistently pays out dividends would be considered a healthy company as they are doing well enough to pay their operation costs and still return some of their profits back to their investors.

 

How to know when you should sell a stock

Savvy investors will have mastered several important skills: know what type of investor you are, know your strategy during volatile times and be a good researcher. When it comes to knowing when to sell, you need your own particular set of skills (Liam Neeson quotes apply to anything!).

 

There’s a sweet spot between liking the stocks you purchase and LOVING them. When there’s too much emotion behind your purchases, it can be difficult to unload them even though that may be the best decision for your portfolio. Continue doing research even after you’ve purchased your stocks. That’s not to say that you should dump a stock at the first sign of a price reduction. It also doesn’t mean that you should buy Disney stock because you own 20 pairs of Mickey ears.

 

Purchase a stock that means something to you but be objective enough to sell the stock if it’s no longer propelling you toward your financial goals.  

 

Bottom line

We hope these tips have helped you decide how to start investing—or how to improve your performance if you’re already there. We’ve said it before, even if you follow all these tips to the letter, remember that your account may experience some short-term fluctuations which can put your money at risk. Monitor your accounts frequently and educate yourself before making financial decisions.