How to Invest in Stocks for Beginners

Here’s a very basic investing guide for beginners on how to invest in stocks.  If you know little or nothing about where or how to invest this is a good place to start learning investment and investing basics.

Stocks are also called equities because when you invest in them you are buying part ownership (equity) in a corporation like Google, GE, or XYZ.  Why invest your hard earned money in stocks?  When you invest money in the bank you invest for safety and earn a little interest.  When you invest in stocks you accept investment risk in order to earn higher returns.  Once you learn how to invest in stocks you can put your money to work and make it really grow.

View stocks as the primary growth engine in your personal investment portfolio.  Over the long term they have provided investors with average returns of about 10% per year vs. about 3% in safe investments.  That’s why it pays to take some risk and learn how to invest in stocks.  There are TWO basic ways people invest money in stock investments.

Folks who feel they know how to invest on their own simply open a brokerage account and pick their own stocks to invest in.  These days you can buy and sell stocks for $10 a trade through a discount broker.  If you are investing as a beginner forget about picking your own stocks to invest in.  Few people who play the stock market play the stock picking game successfully.  Fewer yet actually beat the market over the long term.

For at least 80% of the people I worked with as a financial planner the best way to invest in stocks was simply to invest in mutual funds called STOCK FUNDS or EQUITY FUNDS.  Why invest in funds?  Your objective when you invest in stocks should be to participate in the profit opportunities offered by stock investing – at an acceptable level of risk.  How do you keep risk at an acceptable level so you don’t need to worry about owning the wrong stocks at the wrong time?  Whether you are investing as a beginner or you are just an average investor you need to own part of a diversified stock portfolio.  That’s what a diversified equity fund is: a professionally managed portfolio of stocks.

If you know where and how to invest in these funds it will cost you less than 1% a year to invest and own a small piece of a large investment portfolio of stocks.  If you don’t know where to invest and you invest using the services of a financial planner it can cost much more in fees, charges and expenses.  For example:  5% sales charges when you invest, plus yearly fees of 1% to 2%, plus yearly expenses of 1% or more.

As a basic guide to investing in stocks:  invest in stock (equity) funds and let the professional money managers decide which specific stocks to invest in.  Tens of millions of American investors do, and you should too.  These funds were designed for average investors and beginners.  For more basic info on stock funds and mutual funds in general stay tuned to the INVESTING GUIDE FOR BEGINNERS series.  Learn how to invest one step at a time.  Start with the investment and investing basics.

If you enjoyed this article you might also want to go and learn how to invest in bonds.