Step 3: Select Your Investment Platform
Your next crucial step is choosing the right brokerage. Follow these steps and consider the following factors when comparing online brokers:
⇒ Look at fees: While many online brokers have eliminated commission fees, carefully review the fine print for any account management fees.
Explore fee structures
Check out features: Examine the research, tools, and educational resources each broker provides. Take note of the range of securities available for trading and whether fractional shares are offered.
Explore broker features
Consider customer support: Read reviews, assess customer service options, and determine if there are local branches if in-person assistance is essential for you.
Learn about customer support
Evaluate user experience: Some brokerage platforms are more user-friendly than others. Opt for a platform that is easy to navigate, ensuring a stress-free experience when accessing your account and managing your portfolio.
Check user experience
See what others are saying: Review feedback from fellow investors and explore our reviews of online stock brokers for beginners.
Read investor reviews
Step 4: Decide on Your Investments
As a beginner, it’s prudent to adopt a conservative approach. Focus on stocks from well-established companies with a history of regular dividends. This strategy allows you to earn a steady income while patiently waiting for your investments to appreciate.
Consider exploring dividend aristocrats, a specific list of stocks from recognizable names such as AFLAC, Cardinal Health, Clorox, Chevron, General Dynamics, Johnson & Johnson, Kimberly-Clark, and Coca-Cola. To qualify as a dividend aristocrat, a stock must be an S&P 500 company with at least 25 consecutive years of dividend increases and meet specific size and liquidity requirements.
In essence, these stocks represent the bluest of “blue chips,” historically outperforming the general market and demonstrating resilience during market downturns. Initiate your investment journey with these dividend aristocrats, gradually incorporating more speculative stocks as your confidence grows.
Discover dividend aristocrats
5. Determine Your Investment Amount
The ideal amount to invest in the stock market is subjective and hinges on your specific goals and timeline.
Asset Allocation:
⇒ Determine the breakdown of your portfolio between different assets.
⇒ Younger investors can generally hold a higher percentage of stocks. As you age, consider scaling back stock allocation for more stable investments like CDs and bonds.
⇒ Some experts suggest subtracting your age from 110 to ascertain the percentage of funds to invest in stocks. For instance, if you’re 30, you might consider allocating 80% to stocks, adjusting based on your risk tolerance.
⇒ Learn more about Asset Allocation
Initial Investment:
⇒ There’s no fixed magic number; it depends on your individual circumstances.
⇒ Ensure you can live without the invested funds for three to five years due to stock market volatility.
⇒ Avoid using a stock brokerage account for emergencies or short-term goals like a wedding or down payment.
⇒ Most online brokerages have low or no account minimums, enabling you to start with just a few dollars.
⇒ Fractional shares allow you to invest in portions of stocks, providing flexibility with smaller amounts.
⇒ Explore Initial Investment Strategies
Ongoing Contributions:
⇒ Decide on a regular contribution plan for future investments.
⇒ Avoid a one-time approach; commit to a consistent savings plan.
⇒ Gradually move into your investments rather than making sporadic trades, even in a commission-free environment.
⇒ For example, if you start with a $1,000 initial investment, consider adding a regular monthly contribution, such as $250, based on your budget.
Step 6: Monitor and Adjust Your Investments
After defining your goals and initiating your stock investments through your selected broker, it’s crucial to actively manage your portfolio. If you opted for a robo-advisor or a human financial advisor, this step is relatively straightforward.
For those actively overseeing their portfolios, additional decisions arise, such as determining when to buy or sell to stay aligned with your objectives. This involves relying on market data and research tools provided by your chosen brokerage.
Regardless of your approach, regular check-ins on your investments are essential. Reevaluate your goals, recognizing that they may evolve as you age and reach various life milestones.
It’s important to note that market fluctuations are common, so resist the temptation to excessively monitor your performance or make impulsive decisions.
⇒ Explore Investment Management Strategies