Learning how to safely and effectively invest your money – whether it be $20 or $20 million – is one of the most useful and vital skills you can learn. Yet, it isn't taught at any school level. Young adults must rely on parents, relatives, friends, online courses, or advisors to grasp what investing is and how to get started. In reality, it isn't complicated, but there are several overarching guidelines you should follow before investing a cent.
Pick a platform
There are a multitude of investment platforms, or online stockbrokers, suitable for beginners. TDA meritrade, E*TRADE, Robinhood, Charles Schwabare all formidable options free to open an account on. Ensure you log your username and password somewhere safe because if you forget it down the road, that could mean thousands of your dollars are inaccessible.
Once you create an account, familiarize yourself with the website's interface; it can be confusing. Don't enter any money or press submit until you're entirely sure what you're doing is correct. Consult others or online tutorials to be safe.
Devise a plan
If you're investing, you have a sum of money. No matter how big or small, you need to be smart with where you put it. Say you get a $500 check for your birthday. Are you going to save half and invest the other half? Or invest all of it? Are you going to purchase $100 worth of shares in five different companies? These types of questions and more will need to be answered before you put your money anywhere. Ideally, come up with a plan with a parent, relative, or another person who has investment experience with how you're going to portion your money.
Buy what you know
There are thousands of companies you can invest in, so how do you narrow them down to, say, a half-dozen? Buy what you know. Think of the different products you use daily, whether for your skincare routine or entertainment. Think of things you can't live without, like a phone, food, healthcare, and more. Think of services you often use, like Amazon or Uber. Every single thing you own or use is made by a company that is likely publicly-traded --meaning you can buy shares in it right now.
Buying what you know can satisfy your psyche. If you're putting your energy and money into these products, it will theoretically boost the stock price and make you money. One of the most common pieces of advice to investors is to diversify your portfolio. If you're buying shares in five companies, each company should be in different sectors, like tech, transportation, energy, utilities, and more. If you don't diversify, you may own shares in companies that are competitors, which you don't want.
Research, research, research
Another crucial step before investing a single cent is conducting thorough research on different companies. There's no need to look at spreadsheets or earnings reports; these numbers will confuse a beginner investor. Instead, look at stock charts, analyst grades, and recent news stories about companies you're interested in. Is the share price at an all-time high? Do analysts say 'buy,' 'hold,' or' sell'? Was it just announced the company is laying off two hundred employees? There is always a risk in investing, as nothing is a surefire moneymaker. Otherwise, everyone would be rich. Conduct your research, consult others, and you'll undoubtedly find companies you are willing to invest your money in -- companies that will make you money.
"Dividends" is a term you will become familiar with as your investment career progresses. Investopedia defines dividends as "the distribution of some of a company's earnings to a class of its shareholders. "Essentially, it's free money (but not a lot of it). Not all companies allow their shareholders to reinvest dividends, instead of giving it in liquid cash automatically.
Before you purchase shares, look for an option that says "reinvest dividends" and make sure it's selected. It will instantly reinvest the dividends a company pays you four times a year. More dividends equal more shares, which means potentially more money for you down the road. Earning dividends in liquid cash would allow you to take that cash and invest it wherever you want, not just the company that paid those dividends, but that takes remembering, time, and effort.
Managing your personal finance is one of the most beneficial skills a person can have, and understanding investing, and the stock market is a massive part of that. The sooner you start, likely, the more money you'll make in the long run. The transition to adulthood means becoming financially dependent, so decrease your spending on nonessentials and start thinking about your future.