Learn How to Invest – Investment Basics for Beginners - Saving with Sofi (2024)

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Nothing can grow your money and your net worth quite like investing.

This post is going to walk through the complete basics of investing. If you are a complete beginner this post is for you! Additionally, you can begin investing with as little as 10 dollars.

Investing isn’t just for people with money. Investing is for everyone. The earlier you can begin investing the more time your money has to grow.

Learn how to invest, what exactly the market is, where to invest and all my recommendations for how to make investing the EASIEST possible.

I put off investing for a very long time because I was intimidated and didn’t know where to begin. Don’t make the same mistake I did! Begin investing in the stock market today!

THE MOST IMPORTANT PART OF INVESTING

Before jumping into the post (and while I still have your attention) I wanted to mention the most important part of investing is ACTUALLY investing!

Remember to invest your money, not just make an account and let the money sit there! I did that…. That is probably one of my biggest money regrets. I was contributing to an account for TWO ENTIRE YEARS without investing it.

If you do this you aren’t getting any benefits from investing. (I’ll explain how to actually invest later on!)

OK! We can start the post now!

What is Investing & What Is the Market?

Investing, in the general sense, is putting in money with the hope of getting a favorable return or profit. Here I am specifically talking about investing in the stock market.

So what is the stock market?

As a basic definition, the stock market is where investors (like you and me) go to buy and sell investments; sounds easy enough right?

The most common investment in the stock market is, well, a stock.

A stock is a share of ownership in a public company. When you purchase a stock, you become a part owner in that company! Then when the company grows, makes more money and is worth more, you make money too.

There are other types of financial securities like ETFs, Mutual Funds and Bonds that you can buy and sell in the stock market as well; but more on that in another post! Here we are focusing on a general overview.

How to Make Money From the Stock Market

So we just learned buying a stock means becoming a part owner, but how does that really benefit you or make you any money? There are two ways to make money from the market.

The First: When stock prices increase.

For example, let’s say you purchased a stock for 10 dollars. Then that company performs really well so their price increases to 15 dollars. You can then sell that stock at the new higher price; now, you have 15 dollars instead of the 10 you started with!

On average, the stock market, in the long term, will increase in value by 7% per year. Theoretically, this means you should expect your investments to increase by 7% every year.

However, there are a lot of things to note here. This is VERY IMPORTANT. The 7% is on average for the entire market. This means, any given year will vary greatly and any individual stock will vary greatly.

For example, in 2019 we saw about a 31% gain, however in 2015 we only saw about a 0.5% gain (I pulled these numbers from yahoo finance). This tells us the best way to make money in the stock market is to stay invested. Aka the buy and hold strategy.

Once you invest in the market, stay there. It is incredibly difficult to try and time the market; you don’t know when it will perform well or when it will perform poorly. The easiest most effective way to make money in the stock market is to buy and hold your investments. This will ensure you get that 7% average return per year in the long run!

Another item to note. The 7% return is for the market as a whole, not one individual stock. Making sure you are investing in all areas of the market is quite important. We’ll dive more into detail about this in the “do it yourself” section!

The Second: Dividends.

Companies can choose to pay out dividends. This means the company can decide to share its earnings with you, their investor, and give you cash.

Some companies choose to do this as a little thank you for investing with them.

Additionally, companies can pay out dividends to make their stock more appealing. They want you to invest because when you purchase a stock, you are giving that company cash to be a part owner. So you are contributing to helping them run their business.

Long story short, you give them money, they want to make sure you don’t leave; so they give you a little cash as a thank you, to make sure you stay.

Where to Invest, aka Brokerages

We now know what investing is, how the stock market works and how to make money from the stock market. But I promised this post would help you learn how to invest, so where to invest for retirement or general investing?

There are a plethora of brokerages at your disposal for investing!

What does brokerage mean? A brokerage is a company that buys and sells investments on your behalf. Below is a list of brokerages:

• Fidelity
• Vanguard
• TD Ameritrade
• Webul

To begin investing, you will need to make an account with one of these brokerages. You can then choose which stocks you want to purchase!

Wait wait wait… choose which stocks you want to invest in? How am I supposed to know which stocks to purchase??

That brings us to our next section.

Do it Yourself vs. Robo-Investing

I think people procrastinate on investing their money because they don’t know which stocks to purchase. This is completely normal! As I mentioned before, I didn’t invest for two years because of this! I didn’t know which stocks to buy!

Being knowledgeable and selective about the stocks you buy is important because of how much the rate of return can vary. We were previously talking about how the average market return is 7%.

7% corresponds to the ENTIRE market. So what happens if you’ve put all your money into one stock and the value never increases; or worse, it decreases? Well, your money isn’t growing, it’s actually losing value!

You have to avoid putting all your eggs in one basket. Introducing diversification. When investing, you have to be diversified.

Diversification means being invested in multiple areas of the market; multiple industries. We want to diversify to try and mitigate any risk. The last thing we want to do is lose money.

Choosing individual stocks yourself is difficult because you want to make sure you’re diversified. Doing this on your own is possible if you are confident in your investing knowledge and have the time to research all your individual stocks. However, if you are a beginner, I would not suggest doing this yourself.

Even if you’re experienced, choosing stocks yourself takes a lot of effort. I personally rather have someone else choose and diversify for me. This gives me peace of mind.

Introducing the robo-investor.

Brokerages now have robo-investors that will select stocks for you! They will ensure you are diversified, all you have to do is deposit money! The only caveat is there is a fee for managing your money. However, I feel this fee is well worth it.

I personally use Betterment as my robo-investor.

Betterment let’s you select your risk tolerance and creates an investment strategy from there. Although I’ve been interested in and doing research about personal finance for years, I still use a robo-investor. I think this is the easiest way to ensure you’re well diversified and maximize for long-term growth. Someone else is literally doing all the work for you! How awesome is that?

Below is a list of companies that have robo-investors.

• Betterment
• Wealthfront
• SoFi

Final Thoughts

Investing is an incredibly valuable tool to grow your money. However, we never bring it back to the basics of investing.

This post was designed to cover the investment basics for beginners and provide a general, high level overview. Learn how to invest, where to invest for retirement and get your money in the stock market as fast as possible!

Investing is intimidating, but reading this and starting the conversation is a great step in the right direction! Let me know if you have any questions in the comments!

Lastly, snag my free budget templates for google sheets from my resource library by signing up for my email list! Alternatively shop my budget templates from The Budget Empire! I personally use the Ultimate Wealth Planner to track my finances.

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