A Beginner’s Guide to Investing in the Stock Market

If you want to grow your wealth, having it sit in a savings account likely isn’t doing you any favors. However, investing in the stock market may feel overwhelming. With all the options to choose from, where do you even start? Luckily, investing in the stock market doesn’t have to be complicated, and it doesn’t require extensive financial knowledge. By understanding a few simple concepts, you can be on your way to investing and growing your wealth. Enjoy this beginner’s guide to investing in the stock market.

Time Horizon

First things first—what are you investing for? How long until you plan to use your money is known as your time horizon, which can have major implications for how you’ll want to invest. If you’re saving for a new home, you’ll have different considerations and may need to invest differently than if you’re saving for your retirement 30 years from now. The same goes if you are simply using the stock market as a straight growth vehicle or collecting income from dividend-paying stocks.

You will need to assess which stocks are right for you. Some are less volatile, while others are highly volatile with the potential of bigger rewards/risks.  Not all stocks pay dividends, and the amount and dividend history could be a deciding factor.  While it’s tempting to go for the stock of lower price, the quality is just as important—if not more—when investing, even if the cost is slightly higher.

Risk and Reward 

One of the most important concepts of investing to understand is risk. All investments, especially investments in the stock market, involve risk. This term may have a negative connotation, but it’s not necessarily a bad thing. Risk in investing is similar to risk in life—you’ll have to make decisions that balance the amount of risk you’re willing to take on, but the right amount of risk varies from person to person. One of the reasons that risk isn’t necessarily a bad thing is that it goes hand in hand with reward. For instance, buying a stock when it is “expensive” could be riskier than buying the same stock when it is “cheap.”  One of the best ways to balance risk and reward is by mitigating unnecessary risk.

For more information on stock valuations and how to mitigate risk, contact our team at Good Life Financial Advisors of West Virginia!

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Knowledge Base 

There are multiple options for how you can go about investing in the stock market. If you have the knowledge, time, and desire, you can open a brokerage account and manage your own money. For those with the right background and skill set, this can be a good option.

Not everyone has the financial background or expertise to feel comfortable managing their investments.  Some may not have the time or just don’t want to.  These individuals should consider investing through a financial advisor. Each individual has a unique set of circumstances, and thus needs a unique investment plan and portfolio.  A financial advisor can not only manage your money, but also work with you to create a holistic financial plan specific to you that considers all aspects of how finances impact your life. Contact our team at Good Life Financial Advisors of West Virginia for assistance!

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Costs 

You should have a clear picture of how much you are paying for your investments. At times, it can be hard to determine your fees and costs.  It is very important for you have a good overview of cost structure, and any deviation from transparency should throw up a red flag.

Some of the ways investing can cost you includes advisory fees, transaction fees, commission fees, and more. In a transactional account, you would pay a commission for each transaction, such as buying and selling stocks.  If you have a limited number of transactions, a commission-based account could reduce your overall costs.  With a fee-based account, you are charged a fee based on a percentage of your total assets on a quarterly basis.  There are no commission charges associated with this type of account, making it more cost-effective for more active accounts.  Some fee-based accounts use outside money managers to run their portfolios.  You should be aware of their additional fee when determining your overall costs.

Another factor to consider when reviewing your costs is where you are investing.  Most investment firms are negotiable on the terms of your fees and commissions.  Some have limitations on what they are able to charge and discount.   Contact an advisor at Good Life Financial Advisors of West Virginia for a free consultation to review your current costs and portfolio management!

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Investing with Your Employer

If you contribute to your employer-sponsored 401(k), you’re already investing in the stock market. This doesn’t mean you shouldn’t also have other investment accounts, since the investment options in a 401(k) can be fairly limited. But before you invest anywhere else, you should make sure you’re making the most of your employer-sponsored 401(k). If your employer matches some or all of contribution, you should absolutely max that out prior to investing anywhere else, since you’re essentially earning free money from your employer.

Contact A Trusted Financial Advisor

We hope this beginner’s guide to investing in the stock market has shown you that it doesn’t have to be difficult. Once you understand a few simple concepts, you can begin investing and furthering your financial education. One of the best strategies to continue learning is to find people who are knowledgeable about finance and ask as many questions as you can. If you have specific questions about getting started, contact a member from Good Life Financial Advisors of West Virginia to learn more!

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