Investing in the stock market can be an excellent way to grow your wealth over time. However, as a beginner, you may wonder how often you should invest in stocks. Should you invest regularly or only when you have extra money to spare? Further, you may be wondering where you should put your hard earn money. In this blog post, we will explore these questions on how often beginners should invest in stocks. We’ll also discuss different types of stocks you can invest into.
How often should you invest in stocks?
In order for you to know how often should you invest in stocks, you need to figured out what is your financial situation and what are your financial goals. I will discussed both of these topics in the following two sections.
But first, how often should you invest in stocks?
I like to invest in stocks in small increments over a long period of time. So for instance, if I receive a paycheck from my employer, I want to use XX% of that paycheck and invest that same amount into stocks, Every-Single-Time. Essentially, I like to invest in stocks every time I receive a paycheck. This investing strategy is similar to dollar-cost-averaging, which I explain more later in the post.
The amount of money you invest in stocks is not as important as how often you do it. This is because by investing every time you receive a paycheck, you are building good healthy financial habits. Over time, those good healthy financial habits are going to create returns since you’ll be using the power of compounding.
If you look at the chart below, see how investing as little as $50 every two weeks can have a substantial impact over the course of 10 years. For instance, assuming you invest $50 every two weeks and assuming a 10% annual return. Your total value will be worth close to $22,000 ten years from now. And that number means you invested $13,000 of your own money throughout those 10 years and the remaining $9,000 was earned through market appreciation from your investments. That’s the power of compounding!
How often should you invest in stocks depends on what is your financial situation
Before you start investing in stocks, the first step is to have your current financial situation in check. This includes having a monthly budget that allows you to cover your expenses each month, having an emergency fund in place, and paying off high-interest debt. If you don’t have these basics covered, you may be tempted to pull any investments you’ve made out of the stock market to cover any unexpected costs.
If you do not have a budget in place, and need some tips on getting it together. Check out my prior blog post ‘7 Easy Steps To Create Your Personal Monthly Budget’. Below I’ve provided a template you can use to start making your budget.
How often should you invest in stocks depends on your financial goals
If you’ve read any of my past blog posts on personal finance, you’ll see a common theme. That is you need to have a goal in place in order to know which direction you are heading. If you don’t know which direction you are heading, how will you know whether stocks are right for you? So lets make sure we understand what our short-term and long term financial goals are, and whether stocks fit that goal. Some of these goals may include, are you investing for the long-term?; are you investing for retirement and would need a retirement account?; or are you investing to increase your passive income? Ask yourself if you are going to be a long-term investor. After you answer these questions it will make your investment strategy easy to figure out.
Before you invest in the stock market, it may be a good idea to speak with a financial advisor. This way you can both create a plan together for the best way to reach your financial goals. Your financial advisor can provide you with investment advice and answer questions on a particular stock. Further, your financial advisor may also provide you with advice on how to weather the storm during market volatility. As you are probably already aware, past performance of a single stock does not guarantee future results. And understanding how to react during a bear market and a bull market will help set you up for success in the short term and the long haul.
How to invest in the stock market?
The simple answer is to open a brokerage account. You should consider opening a brokerage account with a reputable brokerage firm in order to purchase and sell stocks. Its simple trading stocks in the stock market thanks to the many online brokers who provide inexpensive costs and user-friendly platforms. Before selecting a broker, be sure to compare transaction fees or trading fees, features, and customer service. Some reputable firms for retail investors include Fidelity, Charles Schwab, TD Ameritrade, Robinhood, or E-trade.
Once you have picked a brokerage to use and created your first investment account, you’ll need to connect your bank account so you can make your initial investment.
Your brokerage account will be a good place to see the current market value of your investments, share prices or stock prices, market capitalization of each stock, and number of shares you own.
What are some different types of investment strategies?
If you are a beginner in investing, you may wonder not only how to invest, but also types of investment strategies. There are several different types of strategies you should consider. And the beauty is that you don’t need to stick to just one. You can blend several different types as well as dig deeper into one particular type and really alter your criteria. But since you are a beginner who is looking to see how often to invest in stocks. You should consider dollar cost averaging (explained below). I’ve also listed several other types of investment strategies that you can include in your arsenal.
- Dollar-cost averaging – This strategy involves investing a fixed amount of money at regular intervals, regardless of the current market conditions. Timing the market is very difficult to do, even some of the smartest institutional investors struggle with timing the market correctly. By investing regularly over time, you can potentially reduce the impact of market fluctuations on your overall returns.
- Dividend investing – This strategy involves choosing stocks that pay a regular dividend, with the goal of generating a steady stream of passive income from these payments. Investors who concentrate on dividend investing frequently target businesses with regular dividend payments in the past, solid cash flow, and steady earnings. If you want to learn more about dividend investing, you can read my blog post ‘Invest Like A Professional With This Simply Dividend Strategy’
- Passive investing – This strategy involves investing in a diversified portfolio of stocks or bonds that track the performance of an index or market segment, such as the s&p 500 index, Dow Jones Industrial Average, or the total bond market. Passive investors may seek to match the performance of the market instead of trying to beat it. To achieve this goal, investors may use several low-cost index funds or exchange-traded funds (ETFs). Later on we will discuss more on ETFs.
- Active investing – This involves investing in individual stocks or bonds with the goal of trying to beat the market. Active investors may use a variety of techniques or criteria, such as fundamental analysis or technical analysis, to select investments they believe will outperform the market. Active investing is a common strategy you may see intuitional investors such as hedge funds or mutual funds practice.
- Value investing – This strategy involves seeking out stocks or other investments that are undervalued by the market, with the goal of buying them at a discount and holding them until they appreciate in value. Value investing was born from Benjamin Graham, with one of the most legendary books, The Intelligent Investor. His philosophy includes finding companies with solid fundamentals, such as strong earnings and low debt, and uses a variety of metrics, such as price-to-earnings ratios or price-to-book ratios, to identify undervalued stocks.
- Growth investing – This strategy involves seeking out stocks that are expected to grow rapidly in the future. The goal here is to buy them before their respective stock price rise significantly. Growth investors focus on companies with strong earnings growth, high revenue growth, and innovative products or services. Cathie Woods is an example of a growth investor who invested in several funds through her Ark Investment Management company.
- Sector investing – This strategy involves investing in specific sectors of the economy, such as technology, healthcare, or energy. The goal is taking advantage of trends or opportunities within those sectors. Sector investors may use a variety of techniques, such as fundamental analysis or technical analysis, to identify promising investments within their chosen sectors. When sector investors perform fundamental analysis, they may speak with key opinion leaders (KOLs), perform surveys, attend conferences, or meet with senior leadership teams in order to build a their thesis.
Different types of stocks to invest in
Now that we have discussed the frequency on how often you should invest in stocks for beginners as well as different strategies, I want us to review the different types of stock you can invest into.
Mutual Funds
– A mutual fund is an investment vehicle that pools money from multiple people and invests it in a portfolio of variety of securities such as stocks or bonds. When you buy shares in a mutual fund, you are buying a portion of the fund’s overall holdings. The advantage of a mutual fund is that the fund will diversify across multiple assets. However, mutual fund’s expense ratio are typically higher than other funds such as Exchange Traded Funds (ETFs).
Exchange-traded funds (ETFs)
– An ETF is a type of investment fund that trades on the stock market similar to a stock. They are made to monitor the performance of a certain index, like the S&P 500 index, or a particular market segment, like technology or healthcare. A couple of examples are SPY and QQQ. An ETF share represents a portion of the fund’s investment portfolio. ETFs are priced and exchanged continually throughout the trading day, which is similar an individual stock. This is in contrast to mutual funds, which are quoted and traded just once daily. Finally, one of the main benefits of an ETF is that they typically have lower expense ratios (lower fees).
Individual Stocks
– A stock, or share, represents a unit of ownership in a publicly traded company. When you buy a share of stock in a company, you become a part-owner of that company. You are also entitled to a portion of its profits if management decides to distribute. These are known as dividends. There are different types of stocks, including common stocks and preferred stocks. Common stock is the most common type of stock and represents ownership in a company with voting rights at shareholder meetings. Preferred stock typically pays a fixed dividend and gives shareholders priority over common stockholders in the event of a company’s bankruptcy or liquidation.
Understand your risk tolerance before investing
Understanding your risk tolerance will help you determine your asset allocation for stocks and different investment strategies to choose from. Further, it can help you make informed decisions and help you avoid making emotional, impulsive decisions based on market volatility. If you are willing to take on more risk, you could potential earn higher returns; whereas if you are risk-adverse you would want to invest in safer investments, but you could earn lower returns.
Build a long-term investment strategy plan
You don’t need much money to get started in investing in the stock market. New investors should aim to invest every time they receive a pay check. Investing on a regular basis will build healthy financial habits. Do not focus so much on when it is a good time or a wrong time to invest. Trying to time the market is difficult to do. You should rather focus your investing time frame for the long run. Bottom line: invest in stocks every time you receive a paycheck.
If you have enjoyed this article and want to learn more about how to invest and gain financial freedom, check out some of my favorite blog posts below.
- Passive Income 101: The Basics + Strategies To Unlock Financial Independence
- How To Build Long Term Wealth
- 11 Powerful Ways On How To Fight Inflation Today
Live well,
Blue
One response to “How Often Should You Invest in Stocks For Beginners”
I’m ready to start my road in the stock market!!!