It isn't as complicated as you may think to start investing
Many people are happy to let someone else manage their money, while others seek to manage their own (even if it's just a small portion). A common question from the latter is: How do I start investing?
If you are someone who's curious about investing for yourself, read on to learn exactly what you need to do to get started.
1. Opening a brokerage account
In order to start investing, you first need an account that allows you to buy and sell stocks (a brokerage account). Nowadays the process of opening an account is easier and faster than ever. However, there are many options.
You should pick a brokerage based on your personal needs. Things to consider are
- Size of your account
- Value of customer service
- Tech savviness
That said, the three that we think have broad offerings to suit the needs of a variety of investors are (in alphabetical order)
2. Funding a brokerage account
Once you've successfully opened a brokerage account, you'll need to fund it. Instructions vary depending on the brokerage account that you selected.
In any case, you'll want to choose an amount that you're comfortable with.
If you do not have a lump some of cash, many brokerages (including the three above) allow for regular deposits. This allows you to build up the cash in your account over time.
3. Developing your strategy
Before or after your account is funded, you'll need to decide on an investment strategy, which is the cornerstone of your investment journey. It should be written down before you start buying stocks.
Things you'll want to consider are
- Size - how much capital are you willing to have invested?
- Time - what is your ideal holding period?
- Allocation - how much of your cash are you willing to put towards one holding?
- Risk - what is the max loss you're willing to take on any given position?
- Stock type - what type of companies are you interested in investing in?
- Entry point - when will you buy a stock?
- Exit point - when will you sell a stock?
Writing this down will ensure that you adhere to it, minimizing the amount that your emotions become involved.
An example strategy is as follows:
- $5,000 portfolio (size) with an average hold time of 1+ years (time)
- Each position will be $250 (allocation) with a max loss of 50% (risk), this allows for a max of 18 stocks
- The portfolio will consist of 100% stocks under $3 at the time of investment and will be well-diversified across growth/value/industry (stock type)
- Positions will be entered in support zones or along key moving average support on the weekly time frame (entry point)
- Half of the original position will be exited when the share price doubles from the entry point; the remainder will be exited when the stock drops 25% from its most recent high after doubling (the Selling Plan of the Bowser Game Plan) (exit point)
4. Finding stocks that fit your strategy
A key part of your strategy should be the types of stocks you'll invest in. Once that is defined, you'll need to find those stocks. If you're unsure of how to define the stocks you're looking for, here are some ideas:
Do you want to invest in small stocks or large stocks or a combination?
You can define size by market capitalization (price per share multiplied by the number of shares) or price per share.
Growth or Value
Do you want to invest in companies that are growing or undervalued or both?
Growth companies have a strong future outlook, as well as a history of growing financials. Value stocks have some inherent value compared to the market and/or their peers.
What particular industries are attractive to you? Or, do you wish to diversify your investments across a variety of industries?
Putting it all together
Once you've identified what stocks you are interested in, you can either build a screener to identify what opportunities exist or you can subscribe to a research newsletter that specializes in the stocks you're looking for (like The Bowser Report for small stocks). The benefit of such services is that they do the leg work for you.
Whether you screen stocks on your own or subscribe to a newsletter, we always advise doing your own research after you've come across a stock. To do so, you'll want to check out some research platforms. There are a number of good free ones, including Finviz.com, Nasdaq.com and Yahoo! Finance.
5. Placing an order
Once you've developed your strategy and decided what stocks to invest in, it's time to place an order. Different brokerages have different interfaces, but the order types are consistent. They include:
- Market orders, which place a buy or sell at the current market price
- Limit orders, which place a buy or sell at a specific price that you set
- Stop orders, which trigger a buy or sell once a certain price is hit
You can also place orders in different time frames. "Day" will cancel the order if it doesn't fill by the end of the day that it was placed. "GTC" or "Good Till Cancelled" will keep the order open until cancelled or until a specific date. "Ext" or "Extended Hours" will keep the order open during after market/before market hours.
To place your order, select your stock and then the order type and the "Time In Force" or "TIF." Then submit it and wait for it to fill.
Do this in accordance with your strategy to build your portfolio!