Eight Key Steps to Take When Investing in the Stock Market

A man looks at stock prices on his smartphone.

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Often accompanied by words like “volatile” and “risky,” the stock market is an intimidating and confusing place for many. While beginner investors may know investing in the stock market is a key part of building wealth, they may also tend to avoid it because they feel it’s too complicated for them to get involved in or that they don’t have the knowledge necessary to make smart investment choices.

Here, the financial experts of Kiplinger Advisor Collective seek to demystify the stock market and break down some of the fears people may have around investing. Below, they discuss some of the key steps you’ll want to take when jumping into the stock market for the first time and why a little education and a plan can go a long way toward investing successfully.

Ensure you understand the key concepts
“One important step is to educate yourself about the basics of investing and to get professional advice. Understanding key concepts such as diversification, risk tolerance and market trends helps you build confidence. A financial adviser can provide personalized guidance to help you develop a tailored investment strategy. Taking this approach ensures you make informed decisions and increases your odds of achieving your financial goals.” — Jabin Geevarghese George, Tata Consultancy Services Ltd.

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Prioritize diversification
“When investing in the stock market, new investors should prioritize diversification. Instead of chasing individual stocks (like picking one jelly bean), they should diversify (buy the whole bag). Low-fee, globally diversified ETFs and mutual funds remove the guesswork, spread the risk and increase long-term potential returns over the decades.” — Dennis McNamara, wHealth Advisors

Start with a savings plan
“Commit to paying yourself first with either a fixed amount or a fixed percentage of income. Consistency matters. Once you have done that, consider dividing the money into several index funds. Understand that markets are volatile, so commit to a long-term savings strategy that includes separate funds for an emergency fund and day-to-day expenses.” — Deborah W. Ellis, Ellis Wealth Planning

Separate the good information from the bad
“Luckily, investment information is easier to find than ever, and young adults are starting to save earlier than ever. The new challenge is not only sifting through the bad information to find the good but also recognizing it and acting on it. Establish a foundation of financial literacy so you can differentiate scams from opportunities. Social media is performance art, not real advice.” — Stephen Kates, Annuity.org

Steer clear of investment apps
“Don't use an app just because it makes investing feel user-friendly. Most apps encourage you to invest by picking (pieces of) individual stocks, and tons of research shows that's an extremely unreliable route for the everyday saver. They're gamified and fun, so they feel like a good entry point for new investors, but you'll be better off in the long run sticking with boring index funds or ETFs.” — Dana Miranda, YOU DON'T NEED A BUDGET

Balance short-term needs with long-term goals
“Many people think they don't have enough wealth to invest; however, it is important to recognize that investing helps people build wealth. It is important to develop a savings plan for short-term needs (rainy-day fund and a down payment to purchase a home) and an investment plan for long-term goals (college education and retirement). Focus on consistency and tax efficiency.” — Marguerita Cheng, Blue Ocean Global Wealth

Find the right mix for you
“Start small, but be consistent. Talk to an investment professional who knows what they are doing. For some people, experiments with investing may work. But for most people, the right mix of conservatism and a little excitement in the stock market may ensure that your money outpaces inflation and give you a respectable return on your capital.” — Zain Jaffer, Zain Ventures

Seek professional advice
“For an investor who is inexperienced in investing, seeking the help of a financial expert who knows what they are doing is critical for success. There are too many areas in which someone can make a mistake, oftentimes leading to adverse results that could destroy the performance of your investment portfolio. Seeking an objective financial expert can help you avoid these windfalls.” — Greg Welborn, First Financial Consulting

Disclaimer

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.