9 Steps to Get Started in the Stock Market

Congratulations! You want to invest. 

This is excellent news, because this is your first step in potentially securing your financial future.

I say potentially, because it takes so much more than yelling “Buy!” and “Sell!” in order to see the dollars roll in.

I wish it were that easy. But despair not, below are 9 steps to get you started in your investment future.

Before I being listing things I want you to take a good look at your financial situation and be honest with yourself, if you have the funds available to begin investing:

Do you have steady employment and a steady income?

Do you have debt? If yes, how much and would it be advisable to start investing while still trying to pay off a line of credit or other loan?

Is your family situation about to change? A baby means a new cost factor and funding for investments might not be available.

And is there enough money left in your household budget to start investing.

Once you have honestly answered these questions for yourself and decided what goals you want to reach by investing, you can set your plan into motion.

1. Have a Back-Up Plan

Before you jump into the exciting world of the stock market, buying and selling and investing, you need to make sure that you have a good back up plan in case your financial situation changes without warning. 

Make sure you have at least 3 months of rent and other expenses saved in an account you can easily access, also known as an emergency fund.

Nobody likes unpleasant surprises, but as the saying goes you-know-what happens. So, best be prepared before you lock your money in investments that leave you scrambling to make ends meet.

2. Start With a Retirement Account

As I have mentioned in the article 10 ways for beginners to start investing, a retirement account is a good way to ease yourself into the world of investing.

Plus, it’s a great way to provide for your future self by starting to put money aside early. 

Keep in mind, there are two different kinds of retirement accounts to invest in.

The first is the employer-sponsored account, like the 401(k). Depending on your company there might be different requirements to be eligible to participate in investing. The company may also match your contribution or give a percentile towards your contribution.

Talk to your company’s HR department to find out all you about your options about the employer-sponsored retirement account.

The second kind of retirement account is an IRA (individual retirement account). It is not connected to any employer and any one over the age of 18 years with an income can open one. This one is a great option for freelance or part-time workers.

There are many options available for an IRA and you should do some research into which account offers the best benefits for you.

Three stock brokers that offer IRAs are E*Trade, TD Ameritrade and Merrill.

3. Use an Online Service to Open an Account

Starting out in the world of investing is scary and you may not feel comfortable enough to make the plunge into a DIY investment portfolio. 

So, for us nervous novices there are robo advisors, such as Acorns (see my article “10 ways for beginners to start investing”). They use algorithms to create a combination of stock and funds to suit your personal needs and preferences. 

You can also use an online stock broker, for those of us who want to get their toes wet in the world of stock research, buying, selling and so forth.

Four online brokers to check out, if that seems like a good option for you are: E*Trade, Fidelity, Ally Invest and TD Ameritrade.

4. Start Simple

When you start investing, start with mutual funds and exchange traded funds (ETFs). 

They are professionally managed and all you have to do is decide how much money you want to invest in them. Easy. 

Also, the funds hold a variety of stocks and with that diversification is included.

5. Invest in Index Funds

Another great option to reduce stress when starting to invest are index funds. 

Index funds will never outperformed the market, but they will never under-perform as well. So, for a new investor this is exactly what is desired.

For an explanation of index funds, check out my other article 10 ways for beginners to start investing.

6. Buy Into Your Investment Steadily

This is called dollar-cost averaging. Instead of investing a large amount of money in one fund at once, you make gradual contributions of a smaller sum consistently.

For example, instead of investing $1000 at once in a single fund, you contribute $100 every month.

This way, you are buying into the market at various times, possibly avoiding buying at the top of the market. It also takes away to painstaking question of when you should buy into the market, because you are doing it continuously.

7. Educate Yourself

Knowledge is power.

Once you feel ready to venture further into the lands of investing, past the mutual funds, IRAs and ETFs, you need to learn as much as you can about investing before potentially making a big mistake.

I don’t want to scare you off, but we have to remain realistic. This is not a round of Monopoly.

You may not physically see the money that leaves your account and potentially vanishes into the virtual realms of stocks and bonds, but it can leave you in a very real and financially uncomfortable position, if you take this endeavour lightly.

You can go to your local library and ask staff to put together a reading list of relevant resources that will help you become more at ease with investing.

You can take courses offered by your local community college.

Familiarize yourself with the market by checking the stock exchange everyday. Talk to and work with an online broker and surround yourself with those that deal with investments and have the knowledge to share with you.

If you want investing and your investments to work for you, ongoing learning and exposure will become part of your daily life.

8. Gradually Invest in Individual Stocks

Work towards building your investment portfolio by gradually investing in individual stocks.

In this case you don’t have the safety net of the dollar-cost averaging feature like we discussed above. So, when investing in individual stocks, you must create your own method to invest on a steady basis.

Do not overload one stock. And make sure that the position of your stock serves only a small part of your total portfolio (about 10% or less).

9. Diversify

Work towards building your investment portfolio by gradually investing in individual stocks.

In this case you don’t have the safety net of the dollar-cost averaging feature like we discussed above. So, when investing in individual stocks, you must create your own method to invest on a steady basis.

Do not overload one stock. And make sure that the position of your stock serves only a small part of your total portfolio (about 10% or less).

Final Thoughts

Starting to invest in the stock market is a really scary thing for most people but it doesn’t need to be. If you follow these steps to get started in the stock market, you’ll be earning money soon!