So, you’re finally at an age and a place in your career where you have some expendable income. You’ve put in the time, put in the work, and it’s paid off. No more broke college meals for you! You may even be ready to get on track to adulting the right way by taking the plunge into investing.
There’s just one problem, though. You don’t feel confident enough to put money into the stock market. The idea of buying stocks, navigating a trading or investment platform, and making decisions that could cost you a pretty penny — quite literally — makes you a little squeamish, in fact.
Well, don’t worry. It’s really normal to be intimidated by the idea of investing. There are so many acronyms, terms, and technicalities to learn that it’s hard to know where to even start. Don’t write it off because of that, though. Investing in the stock market can be a lot more lucrative (and a lot safer) than stowing that extra cash in your mattress or tossing it into a low-interest account. Ready to get started? Here’s how you can find the confidence you need as a novice investor.
Trust your money to work for you
Leave your money in one of those types of accounts (or in that pillowcase in the closet) and guess what happens? You’re guaranteed to lose money — and not by some thief in the night, either. Your money is probably physically safe in that lockbox you bought on Amazon or in a low-interest account, but it’s not going to be worth as much if you leave it where it is … all thanks to an annoying little thing called inflation.
Unfamiliar with what inflation is? Here’s the deal. Inflation is what causes that delicious takeout you’re eating to be $20 rather than $10, like it was a few years back. And inflation doesn’t just cause the hike in food and retail prices. It also causes your money to be worthless over time.
Confused? Let’s say you put $10 into a lockbox five years back and were waiting for the right time to order that Thai meal from the hotspot down the road. You’ve waited and waited and are finally ready to indulge, so you pull out that money. But what do you hear in your head? Womp-womp. No Thai food for you — you can’t afford it anymore due to inflation.
In other words, inflation causes you to have less purchase power over time from the money you earn. Investing can make up for inflation by helping your money to earn money to compensate for the loss of purchasing power over time.
How much can it compensate for? Well, that’s a little trickier. Inflation rates vary from year to year, but to make it easier to calculate, let’s use the inflation rate from 2020. That clocked in at about 1.4% overall. On the other hand, investing in the market over a long period of time will net you about 7% on your money.
That works out to about 5.6% back on the money you invest — which is a heck of a lot better than you’d get by tossing your money into a suitcase hidden under your bed. (It’s also a lot better than you’d earn with a high-interest bank account, so it’s really a huge win all around.)
Trust yourself, too — you know more than you think you do
Still not sold that you’re confident enough to invest? Or that it’s the right move for your lifestyle? Well, then hear this: you actually know more than you think you do. Sure, you may not be a seasoned investment vet, but you really do have a stockpile of knowledge in your brain to bank on.
All of those charts and investing platforms look intimidating, but you don’t need to be a math or market whiz (or anything close) to conquer this task. Here’s why. The reality is that there aren’t unseen forces driving the market. In general, our consumer habits are basically what drives at least the retail stock prices up or down. And that’s an easy place to start making your investments.
If you want to make a calculated investment in a retail stock, be sure to pay attention to the stores that are busiest in your area. Is the parking lot for that huge retail outlet always full? Does the store look well-stocked and well-maintained? Are people buzzing about the products you can get there? That all tells you a lot about the health of that particular store, and therefore, that particular investment. Same goes for stores with empty parking lots or shelves.
You should also just learn to trust yourself and your gut. Buy into companies that you know and love, not meme or fad stocks. If you believe in the ability of a company to turn a profit and can back it up with some evidence, it’s probably a good bet. If you feel that way about the company, other investors likely do too, which means that the company’s stock will be sought after.
How do you think the Apple stock exploded like it did? Or Tesla? These investors weren’t lucky guessers; they were people who believed in what the company was doing, the products they were rolling out, and where the business was headed. Follow that same path and you’re on track to making some solid investments that you can be confident in.
Set yourself up for success
Before you go diving into your favourite stocks, though, make sure you have set yourself up for success. This includes:
- Making sure you have a good emergency fund with enough cash to cover at least six months’ worth of bills
- Cutting down significantly on your high-interest debt (hello, credit card bills!) before investing money in stocks
- Ensuring that you’re on solid financial footing. In other words, can you actually afford to put money into these investments without needing quick access to it?
- Getting your retirement contributions on track
- Having the money saved to start things off, which should be somewhere between $500 and $2,500 at minimum
If you’re on track with all of these basic financial milestones, then you’re good to go on opening an investment account.
Choose the right investment platform
The good news is that there are a ton of different investment platforms to choose from when you start investing. The bad news? There are a ton of different investment platforms to choose from when you start investing. These options can be a double-edged sword when you’re starting out, so do your research and choose the one that works best for you.
That could be a DIY trading platform like WeBull, Robinhood, E*Trade, TD Ameritrade, or Fidelity. These tools let you make your own trades for about $4 to $5 per trade, and may offer you other tools, too.
If that feels too intimidating, opt for a full-service brokerage instead. It will cost you more to do this, but you’ll have an investment professional managing your account, which can make you feel a little less jittery about your choices. The downside? These professionals are pricey, and can easily cost you $150 or more per trade, so make sure you can afford to go this route. It could end up depleting your investment funds quickly if you aren’t careful.
There are no right or wrong answers when choosing how to invest. Go with what makes you feel comfortable and you’ll ooze confidence with your investments.
Don’t freak out about your stocks
While you can make a nice return on your investments, the only way that will happen is if you go into investing with confidence. If you’re losing your marbles every time the stock market dips into red temporarily, you’re going to give yourself a panic attack. You’re also going to make unwise decisions for your investments, which is the opposite of what you want to do.
The stock market ebbs and flows, and guess what? You can’t control it. It’s not a steady stream of water trickling out of your faucet. Your stocks will have good and bad days, or even good and bad months. But you’ll be fine if you follow the golden rule.
And that rule is? Don’t freak out about your stocks. Do not obsess. Do not constantly stare at the ticker on your account as it flips from red to green every few seconds. And whatever you do, do not sell your stock because of one or two or even 10 off days. Just don’t do it.
That’s it! That’s all it takes
Feeling better about this new venture? You should be. There’s nothing intimidating about investing — other than maybe the charts on that trading platform. But for now, you probably don’t even need them. Use the tools you have and the knowledge you’re gaining to start navigating the system. Once you’ve dipped your toes in, it’s a lot more comfortable to swan dive into stocks, and it’s only a matter of time before you do.
Here’s to the Wellness of Your Wallet!