Investing is a powerful tool that can help individuals achieve their financial goals and secure their future. Whether you're saving for retirement, a down payment on a house, or simply looking to grow your wealth, investing in stocks can be a smart choice.
In this beginner's guide, we'll explore the basics of stock investing in 2023 and how you can get started on your investment journey.
Basics of Stock Investing
In order to learn to invest, it's important to understand what investing is, what stocks are and how stock prices are determined.
The goal of investing is to purchase something that you hope will grow in value overtime. Trading vintage baseball cards or collectibles and then selling them at a higher price is a perfect example of investing.
Let’s take a look at the world of stock investing now!
💡Stocks = slices of ownership in a company.
If Company A has 100 shares of stock, each worth $1, and you own one of these, you’d own 10% of company A. The same is true for companies on the stock market, except these companies, like Apple and Amazon, have millions and millions of shares!
The price of a stock is determined by supply and demand. If lots of investors believe Apple stock will increase, then more investors may want to buy the stock, demand and the price may increase! Conversely, if many investors want to sell the stock, demand may decrease and the price may decrease as well.
There are many different ways to evaluate stocks through researching companies and you can learn more about them in the Bloom app or on our education site.
Now that you have the basics down, let’s continue with an outline on how to learn to invest.
Set Investment Goals
The next step to learn to invest is to practice setting specific investment goals. In a world of uncertainty, having personal benchmarks or achievements you want to hit ensures you have some clarity and choice over the decisions you make in the stock market.
By following the SMART framework (specific, measurable, achievable, relevant, and time-bound), you can define goals that are both realistic and actionable.
For example, short-term goals could include saving for a vacation, while long-term goals might involve planning for retirement.
On Bloom, you can create recurring deposits to ensure you’re regularly putting aside money to invest. We also cover specific budgeting plans so you can make a budget and actually stick to it!
Create an Investment Plan
To invest successfully, it's crucial to choose the right investment accounts. Individual retirement accounts (IRAs) and 401(k)s offer tax advantages and are common options for long-term investing.
If you are under 18, or the age of majority in your state, you can create a UTMA custodial account for youth investing with the support of a sponsor on Bloom. Anyone over the age of majority can create a standard brokerage account for investing with Bloom.
Although these do not provide specific tax benefits, you can use your investment profits for whatever you’d like, unlike IRAs and 401Ks which are designated for specific expenses.
When creating an investment plan, consider the goals you set above and risk tolerance. An example goal could be: I want to have invested $5,000 in the next 10 years. Your risk tolerance is how much uncertainty you’re willing to take on when it comes to investing. This affects what stocks you invest in and how much you set aside.
Bloom has specific risk ratings as well as a time machine to see how risky a stock is and its historical returns. Past results do not predict future returns, but act as additional context and can demonstrate the power of investing over time.
Lastly, decide how much money you want to set aside for investing. Many investors determine a percentage of their savings or paycheck to set aside each month.
4 Tips for Investing
- Staying informed is key to successful investing. Keep up with market trends and news that may impact your investments.
- Exchange-Traded Funds (ETFs) are a popular investment option as they provide instant diversification and are traded like stocks.
- Another strategy is dollar-cost averaging, where you invest a fixed amount at regular intervals, reducing the impact of market fluctuations. This could look like investing $5 in.
- Finally, discipline is crucial in avoiding emotional investing decisions, as market volatility can sometimes trigger impulsive actions.
Want to learn more? Download the Bloom app for over 200 interactive lessons that cover fundamental analysis, economics, personal finance and more 🎉
Investing in stocks is a powerful way to build wealth and achieve financial goals. By understanding the basics, setting SMART goals, creating a personalized investment plan, and following essential tips, you can embark on an investment journey. Remember to continue your education and improve your financial literacy through Bloom's resources.