Get That Bread: Advice for First-Time Stock Market Investors

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Learning how to invest in the stock market can be daunting enough, let alone knowing what kind of stocks to invest in and how to manage your investments. Luckily, it isn’t as scary as some of your school’s local finance bro’s want you think. With some background knowledge, the following guidelines and tips, plus your determination to continue learning, you’ll become a smart and savvy investor before you even graduate college.
Read on for the ultimate guide for first-timers on how to investing in the stock market.
1. Gain background knowledge on the stock market
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Smart investing can pave the way to a stable financial future, but you first need to know how to make those good investments. The best way to learn about the stock market is by taking a class. Take advantage of being in college and sign up for an intro to finance class to gain a good intro to managing your investments. “A couple of classes have helped me make [investment] decisions,” said Alejandro Méndez, Boston University senior and investment Banking Summer Analyst at Goldman Sachs. “[They] helped me understand what to look for in a company, where its weaknesses or opportunities might be or how they might be hidden and helped me understand the different ways companies fund their growth and understand any change to a company’s source of funds means a change in the risk assumed by me.” Taking these financial classes will not only help you understand the basics of how investing works but will help you become a smarter investor.
If you don’t have the time or ability to fit an extra class into your schedule, you can look into online courses. Websites like Umedy, which offers a catalog of different online investment courses or Morningstar, which has an online investing classroom, provide a flexible option for learning at your own pace. If you want one-on-one investing advice, you can also search for an investment advisor registered under the Investment Advisors Act of 1940. “Learn how to invest because how financially secure you will be as an adult is much more a function of how you’ve invested and spent the money than how much money you’ve earned, like in a salary,” said Peter Ricchiuti, senior professor of practice at Tulane University’s Freeman School of Business. By gaining a thorough knowledge of the stock market as early as you can, you’ll set yourself up for a financially secure future.
2. Ask yourself what kind of investments you want to make
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You have many different options when it comes to investing in the stock market. The three main ways to invest include stocks–company shares–, mutual funds or an Exchange-Traded Fund (ETF). People often confuse mutual funds and ETFs; mutual funds invest your money in a collection of stocks whereas an ETF, while similar to a mutual fund in that it is a collection of assets, mimics the performance of specific financial markets. You can also trade ETFs like normal stock, while you can only trade mutual funds once a day.
Ask yourself if you want to invest for the short term or the long term. Short term investing, known also as speculating, involves selling a stock for more than you bought it. Long term investing allows your money to run through the cycles of the stock market and make your return. Determine the level of risk you can take. Younger investors typically take higher risks since they’re further away from retirement when they’ll need the money. However, that doesn’t mean investing in risky stock is a good idea if you want to remain financially stable.
3. What to absolutely not do
Don’t Treat Stocks like Gambling
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Investors refer to speculating as the gambling of investments because of the prospect of making a lot of money, but it can all easily crash and burn right before your eyes. “I’ve never seen speculators really ever make money over the long run, they make a couple of quick trades and make some money and then they think they’re Warren Buffett and then eventually give it all back,” Ricchiuti said. “It’s sort of like when you go to the casino, if the house didn’t usually win there wouldn’t be a house.” Speculating often involves day trading, or trading stock multiple times during the day to continuously buy for less and sell for more. However, in the end, you make less money than you would by letting your investment ride through the cycles of the stock market.
By making long term investments instead of speculating you would also have less risk of making bad trades that lose money and you won’t accumulate expensive trading. “I know hundreds of people that have made millions of dollars in the stock market and none of them have done it through getting in and out of stocks, although it’s great to tell girls and everything, but it doesn’t really make any sense,” Ricchiuti said. “The things that really make money are boring.” A lot of new investors, especially young college-aged investors, fall for the enticing and entertaining investments, but if you keep your investments “boring,” you’ll profit more than them.
Don’t try to outplay the market

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