What's the best way to start investing? Investing is a lot like playing chess. You must think and then you move. Alright, we admit we took that quote from the Wu-Tang’s seminal hit song Chess Boxing, but it still holds true. For those who truly want to learn how to invest or start investing, follow this beginner's guide.
If you've never invested before, there are a lot of great resources available on sites like Investopedia, sure, but similar to budgeting advice websites, they’ll set you up with the information you need without showing you how to take that knowledge and implement it.
As an investing app for eager millennials looking to learn how to invest and build long-term wealth, we here at Wealth Stack pride ourselves on combining both the knowledge and the actual implementation strategies.
Read on to learn how to start investing as a beginner. Or, click here to download the Wealth Stack app. In the app, you’ll find tons of free video courses that will help you learn how to invest as a beginner. Then, you can start investing straight in the app!
Investing for Beginners: How Does Investing Work?
Are you super new to investing? Perhaps you’ve seen news surrounding AMC, GameStop, and Robinhood recently and want to try your hand at investing in stocks to earn passive cash? Here’s a basic breakdown of how investing works.
If you buy stocks, you're buying a piece of the company. If that company is successful and its stock price goes up, you'll make money. What happens when you sell a stock? You transfer ownership of the stock to someone else and, hopefully, get a higher price than you paid for it.
Typically, when you start investing in stocks, you’ll also need to decide on what type of brokerage account you want. However, with investing apps becoming increasingly more popular, you can also simply download an app, create an account, and start investing immediately (if that’s what you’re after then download Wealth Stack here).
What to Consider Before You Start Investing
Be Mindful of Your Finances
Learning how to invest as a beginner simply takes time and the right resources. However, there’s a common misconception that you need to have thousands of dollars of disposable income lying around in order to start investing.
That’s simply not true. You can invest as little as $50 a month and see high returns long-term as long as you know how to select the right stocks and play the game. The key here is to focus on your compound rate.
Learn the Basic Types of Investing
There are four main types of investing. To get started, read through our helpful guide on momentum investing vs. value investing. Value investing is one of the most popular investing styles, namely because a lot of key investment figures follow that style. Warren Buffett is one of them.
If you’re just interested in a short breakdown…
Momentum investors seek to buy assets that have recently risen in price, while value investors seek to buy undervalued assets with the goal of selling at a higher price later on.
Value investors are interested in buying shares from companies that they believe offer potential for future growth, regardless of whether or not that company has recently been performing well.
The other two popular styles are growth investing and distressed investing.
Distressed investors are more attracted to struggling, bankrupt companies. They’re looking for investments that are priced well below market value, usually due to something like bankruptcy or cash flow issues.
Growth investors look mainly at the future growth of a company. They’ll look at factors such as high profit margins and high earnings growth rates.
Understand Investing Risks
As a beginner investor, the quicker you learn that no investment is totally risk-free, the easier your life is going to be. When you start investing, you understand that there are certain risks involved. The key, as you grow as an investor, is to learn how to mitigate and manage those risks.
Here’s an easy way to look at risk if you’re a beginner investor:
- Take on more risk if you’re investing for a long-term goal (like those investing for retirement).
- Take on less risk if your goal is to see returns that are slower but more stable.
Ultimately, when it comes to risk and investing decisions, it’s important to consider your overall timeline. What are your goals? Do you need to see returns in three months, a year, ten years? That’ll help you figure out where to start.
Basic Investing Steps to Help You Start Investing
Research Stocks Thoroughly Instead of Following Trends
Our biggest piece of advice (especially for millennials who live online) is to rarely pay attention to the fads and meme stocks. Experienced, professional investors understand how the price of stocks are impacted by real factors and metrics. They look at things like free cash flow, price-to-earnings ratio, and more to determine the value of an investment.
Wanna know what they’re not looking at? The latest meme stocks and what a few novice investors are talking about in some random online forum. Sure, it helps to stay informed. But if you’re really interested in using investing as a way to build long-term wealth, you’re going to have to learn how to invest properly.
Take time to familiarize yourself with what the different metrics mean. Figure out your own investment style. Then, analyze each stock according to something such as Porter’s Five Forces. At the end of the day, you’re looking to invest in good companies with good business models.
Prepare for the Ups and Downs
At Wealth Stack, we believe that investing to build wealth requires a lot of patience. It also requires that you understand that you’re playing a long game. Learning how to wait out the ups and downs calmly will help you quite a bit as an investor.
Instead, focus on diversifying your assets so that you don’t feel those highs and lows so drastically. We have found that eight to 20 positions in your portfolio is a good number to have when it comes to diversification.
If you want to diversify your investments, you might invest in ETFs that are managed for you across different asset classes. There are ETFs for everything from commodities (such as silver, gold, and oil) to the safe but limited returns of government bonds (TLT, GOVT) to stocks (QQQ, SPY).
It’s also a good idea to spread your investments out across these sectors and others to even out that risk. Remember, government bonds are one of the least risky investments out there. They don’t go up a lot but they don’t go down a lot either which can be really helpful to your portfolio of investments during market sell offs.
Download an App for Investing in Stocks
While you can read books on how to invest, learning the art of investing truly comes from understanding that investing is a science. The science consists of determining what the total value of a business should be based on applying a multiple to the expected revenue, profit, and free cash flow that the business will generate.
How do you learn that? By learning from actual experts, by listening to experienced investment pros. When you download the Wealth Stack app, this is what you gain access to. You can access numerous free video courses that will help you learn how to invest.
Then, you can browse through our list of professional Speakers to learn straight from the pros. Ready to get started? Download the app for free today.