Apparently, as a late 20-year-old, you’re suppose to know the ins and outs of stocks. You’re suppose to also have invested in stocks. For me, I’ve done neither. It’s become increasingly more apparent to me how much money you can make if you do and what a tool it is to have some education on it. Because sharing is caring, here is all you need to know about stocks.
What are stocks?
Stocks represent ownership in a company. When you invest with stocks, you become a stockholder of said company. The price of a stock is guided by the performance of the company. Translation: if the company is doing well, the value of the stock will increase; and vice versa if it’s doing bad. You can make money one of two ways when you’re a stockholder: selling your stock or receiving a dividend (quarterly payment) from the company.
Bottom line: investing in stocks is a great way to grow wealth.
How old do you have to be to invest?
The minimum age is 18.
How do you invest?
Firstly, you don’t need a specific amount of money to invest. You are essentially buying a share that can range in price from a few dollars to thousands. One of the easiest ways to start investing in the stock market is by putting money in an online investment account or hiring a robo-advisor. The money can be used to buy shares of stock or stock mutual funds.
Investment/brokerage account: typically this is the least expensive option. You can open an individual retirement account or a taxable brokerage account.
Robo-advisor: if you don’t want to do all the legwork, hiring a robo-advisor is the way to go. They will manage the investment for you and monitor it by your goals.
What is the difference between stocks and stock funds?
Individual stocks are for specific companies. Essentially you buy a share or a few and either trade or hope for the best. People who buy individual stocks try to time the market and buy when value is low and cross their fingers for high performance.
Stock funds allow you purchase small pieces of different stocks in one transaction. The main difference is in price. Mutual funds generally have $1,000 minimums. Experts recommend mutual funds or exchange-traded funds (ETFs) as the best route because you’ll enhance your diversification (code for you won’t have your eggs all in one basket).
ETFs are the perfect cross between individual stocks and mutual funds. They are funds that have stocks from different companies, but traded like single stocks.
How do you know what shares to buy?
This is up to the individual’s discretion. You have to think about the schedule of your goals and how much risk you’re willing to take.
Stock investment is for the long-term individual. Buying stock and trading it after a few days for a quick profit isn’t the most sustainable way to go about the stock market. Experts recommend investing for at least five years. You shouldn’t invest money used for an emergency and you shouldn’t check how your shares are doing daily.
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