Summary

• Our top hacks for new investors and traders.
• Whether you’re investing for retirement, or trying to establish some measure of financial independence through investing, knowledge is power.
• Use these tips to kick-start your portfolio.

Learning how to invest in stocks is a valuable skill for financial planning. Whether you’re investing for retirement, or trying to establish some measure of financial independence through investing, knowledge is power. Here’s some basics to lay a foundation of knowledge for success.

How much should I invest in stocks?

Before you invest, pay down any existing debt and set aside a supply of cash for emergencies. Remember, once you invest in stocks, you should be prepared to allow the investment to mature before drawing on those assets again. Then, consider the balance of risk-reward in your portfolio. You don’t want to invest money that you’ll absolutely need in the future into high-risk investments, but if you have a solid foundation of lower-risk investments, you might be ready to go for more aggressive growth with a portion of new investments.

Consider how actively you want to be involved in the management of your stock investments

Some traders may want to approach investing in stocks as a full-time job, or become a day-trader. This means picking your own individual stocks, and often actively trading stocks for relatively short-term returns. This approach is risky, and requires expertise on economics and the stock market. It also requires emotional and psychological control- you need to be able to cope with volatility and stay focused on a logical strategy. For most people, this is not the ideal way to invest in stocks. Instead, consider investing in ETFs or mutual funds.

How are ETFs and mutual funds different from individual stocks?

ETFs (exchange traded funds) are like bundles of partial shares in a wide range of stocks. So for example, instead of buying a single share of a $900 stock, you could buy partial shares of a wide range of stocks and bonds for a single $900 purchase. The benefits here? For one, diversification for a smaller price tag. To build a diverse portfolio through buying individual stocks, you’d need to drop a lot more money into the project, because you’d be buying entire stock shares in a wide range of companies and sectors. This is not always possible for investors, especially if you’re starting out. And since diversification can mean less risk, ETFs and mutual funds are often a good choice for investors.

What is the difference between ETFs and mutual funds?

ETFs and mutual funds are similar, but slightly different. ETFs are traded throughout the day, like stocks. Mutual funds are only traded at close. With either choice, you’ll want to be aware of whether the fund is actively or passively managed. If it is actively managed, you will pay a percentage for the management. However, in some situations this active management can potentially shield you from market events, through an effective trading strategy, whereas if you are holding a passively managed fund, you may be more likely to take the hits of the market as a whole.

What is the appeal of trading individual stocks?

Although an ETF or mutual fund can offer affordable diversification with lower risk than buying larger portions of shares of individual stocks, you’re not likely to catch your big break on a mutual fund or ETF. If you’re looking to set out and strike gold, then the possibility of betting bigger on individual stocks may be appealing. To optimize your success with the strategy, as you take charge of your own portfolio strategy, it may be wise to seek out relevant stock market news from experts, so that you can make informed investing choices.