I want to start buying stocks. Where do I start?

Investing, Stocks
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2 weeks ago
87% of people found this answer helpful

Wow. This is a tough question to answer due to its very broad range of response material. But, let me list out a few things that I think might be helpful to you on this journey.

1. What is your overall knowledge level of stocks and the stock market? Before taking any action, I would recommend learning as much as you can on these topics. The best course of action would be to take some actual investment classes offered through an accredited program. I met a man once that took classes to obtain the ChFC (Chartered Financial Consultant) designation just to learn more about how to manage his own money. I think this would be the most ideal way to learn more aside from becoming securities licensed yourself. The American College is where I took many of the required courses my CERTIFIED FINANCIAL PLANNER™ designation.

2. As you do your own research, I would also encourage you to learn as much as you can about different investment philosophies (and there are lots of those out there). Learn why some prefer active management vs. passive management, why some like ETFs more than mutual funds, or individual stocks more than ETFs. Understand why some investors focus more on "mainstream" companies while others allocate more of their portfolio toward alternative investments. In other words, before you choose a strategy, you need to know what all of your options are.

3. Do a test run. It's hard to be patient when you have the itch to start investing money, but patience will be a major key of investing success. Start to map out a plan and track the performance of that plan. If you've done a good job in steps #1 and #2, you should hopefully have developed a fundamental investment approach that uses investment staples like diversification and cost reduction, but before you go all in, monitor how the day to day fluctuations would affect your bottom line. If you can't handle the volatility, you need to create a new strategy.

4. Consider hiring an advisor. Advisors come in all shapes and sizes in terms of investment philosophy and firm structure. Some advisors will give hourly advice to the "Do it yourself" type of investor. So, you don't HAVE to hire them full time in order to get your answers. Another option would be hiring them temporarily and trying to learn the ropes for a few years before trying it on your own. However, I will say that the world of investing is ever-changing and I personally believe that you should feel very confident and knowledgeable before making the decision to try and go at this alone. There is a lot to learn when it comes to buying stocks - so much so that many books have been written on the subject. Working with an advisor is a way to get the "cliff notes" version of many of these books in a shorter amount of time.

5. Know your limits. Look, if you know this isn't your cup of tea, then recognize that and don't dig yourself a hole. If you're wanting to buy stocks for entertainment, then perhaps you can open up a small stock account and commit the funds to "entertainment," understanding that you might win or might lose money, but either way, it won't derail your future. However, if this is something you want to have a significant impact in your life, then you'll have to make a significant investment into learning AND monitoring what goes on in the market. This is why many people choose not to do this on their own. The ones that do have the time, energy, and willingness to do the above-listed "leg work."

I'll close with "if it sounds too good to be true, then it probably is." I see stock recommendations all the time from various publications touting the "top reasons this stock will quadruple in the next 5 years". The truth is, most of the publications offering this kind of advice do not have your best interest at heart. They have their own interests in mind. So, don't blindly follow the next stock tip you see. Gain the knowledge to be able to evaluate investments on your own so that you can make an informed decision!

Good luck to you!

Joe Allaria, CFP®

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