How Do I Invest in the Stock Market for Beginners

How Do I Invest in the Stock Market for Beginners

How Do I Invest in the Stock Market for Beginners

Every investor started somewhere. If you’re just getting your feet wet with investing in the stock market and don’t have much money, there are plenty of opportunities available. You can buy individual stocks from a discount broker, but that’s not the only way for a beginner to enter the stock market. A beginner needs more guidance than a discount brokerage can offer. Keep in mind that there is more risk in investing in stocks than there is in just keeping your money in the bank, but there is also the opportunity for far greater rewards.

Robo-investing

Robo-investing involves online platforms serving as digital advisers, but there's little human interaction. If you only have a small amount to invest, robo-investing is a good way for a beginner to get started in the stock market. Give the robo-adviser your basic information, including your risk level, age and retirement date, and the robo-adviser’s algorithms kick in to determine the best stocks or mutual funds for you. The computer model robo-adviser designs a portfolio based on your investment goals, rebalancing it as necessary. Many robo-advisers don’t require a minimum for investment, or you can get started with an investment as low as $500. Robo-adviser platforms charge much lower fees than standard brokerages.

Mutual Funds

Mutual funds have long been the entryway for beginners in the stock market. Mutual funds allow you to purchase stock or bond shares in professionally managed funds in conjunction with other investors. While most mutual funds require $1,000 or more to open an account, you can find quality funds allowing you to get started for just $100. If you’re investing for retirement with an IRA, many mutual funds permit lower minimums for these types of retirement accounts. You may find funds offering a lower minimum if you agree to automatically invest money each month. Choose a no-load fund, one that doesn’t charge commissions or high fees.

Each mutual fund concentrates on specific types of investments. These may include blue chip, tech, foreign or healthcare stocks. That’s just a sampling. Investing in stocks via mutual funds is among the simplest ways to get started with investing, and it allows you to diversify these investments in a way you aren’t able to do when buying individual stocks.

Dividend Reinvestment Plans

You can purchase shares of some of the best-known companies on the planet without paying a commission through a dividend reinvestment plan, or DRIP. Not every company offers a DRIP plan, but many do, including household names such as Home Depot, Walmart and Disney. Some DRIP plans let investors purchase shares at discounts from the typical share price. There are DRIP plans allowing investors to purchase stock with as little as $50, although they are the exception. Expect to pay $200 or $250 for most initial purchases. Once your account is open, add to it in amounts as low as $50. Buy DRIP shares when you have the money, or arrange for monthly purchases from your checking or savings account.

Direct Stock Purchase Plans

Direct stock purchase plans, or DSPPs, are much like DRIPs. There is one major difference. Most DSPPs require investors to own a minimum of one share of the stock prior to participating in the DSPP. That share may be acquired through an online discount broker. DRIPs and DSPPs are good ways to invest in top stocks for little money. Check out the corporate website of any company in which you are interested, and see if they offer a DRIP or DSPP.

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About the Author

A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.