“Damn, I should have bought Peloton stock,” was all I heard the first couple weeks of the pandemic, as people started to realize how important Peloton had become in a work from home climate. But, if you’re like me, a 30-something, you might be embarrassed to admit you don’t know much about stocks.
It feels like we are in the age bracket where people have either just started investing or have had legit value in stocks for a couple of years now. The entire subject goes way over my head, but since I should be properly adulting, I’ve decided to tackle it for the both of us — you know, for research.
First, what is a share?
First things first, when someone says they’ve invested in XYZ (insert company name) stock, it really just means they purchased shares (more on that later) that grant them a small portion of ownership into a public company. The hope with these investments is that the company will do well and grow — increasing the value of your shares. This gives you the option to sell your shares to other investors for more than you paid for it. It’s a quick way to earn a profit if you do sell them.
How to start investing
Sounds good right? So what is the process of investing? How do you know which business to choose? How do you maintain a diversified investment portfolio and stay invested when the market changes?
Although you can always start with a single share, some brokers offer paper trading—the process by which the company educates you on how to buy and sell with simulators before you use real money. The first thing you should do is decide if you’d like to choose the stocks and funds on your own. If you go this route, you will decide with a professional the right amount and account you need. If instead you’d like an expert to manage the process, you might want to sign up for a low-cost investment management service.
One of the easiest ways though is to invest in your employer’s 401(k). This is where you make small, consistent contributions — focusing more on long-term than immediate needs. However, if you open an online brokerage account, you could open an individual retirement account (IRA).
Another way to start out in stocks is to open a robo-advisor account that leaves the paperwork and majority of the duties to the tech bot. The automatic system will ask you for your goals and lifestyle plans, and come up with a customized plan for you to reach your investment goals.
Stock mutual funds, on the other hand, are completely different. Here, you can purchase small pieces of different stocks in a single transaction. Or you can purchase individual stocks from a specific company, but just remember you will most likely experience highs and lows with just one company.
How much do I need?
Now that you know about the different kinds of stocks, how much money do you need to start? Well, truthfully, it depends. You first have to look at the price of the shares, some can be a couple of dollars while others could be thousands. If you want big time tech stocks, get ready to shell out hundreds to thousands per share. You can start with as small or as big of budget as you need.
By the way, if you want to start by saving some cash on the side, here’s a guide on how to start budgeting.