The greatest misconception about
investing is that you need a ton of money to start.
This could have been true 20 years ago, but not now.
Hi, I'm Kate with The Motley Fool.
I'm going to talk about the why, who,
how, where, and what of investing in the stock market.
If you're ready to start investing in
the stock market but aren't
sure of the first steps to take,
you've come to the right place. The when.
Let's talk about money you
shouldn't invest in the stock market first.
The stock market is no place for money that
you might need within the next five years.
At a minimum, the money you plan to invest should
come after your emergency fund, your debts paid off,
and any long-term goals like
money you're saving for a down payment,
even if you won't be prepared to buy
a home for the next several years.
Once those are taken care of,
you can start to grow the money you plan to invest.
While the stock market will
almost certainly rise in the long run,
there's simply too much uncertainty
in stock prices in the short term.
In 2020, at the beginning of the COVID-19 pandemic,
the market plunged by more than 30 percent
and then recovered a few short months later.
You set aside money to start investing.
What's your ultimate goal with your investments?
Some of the most popular ones are retirement,
where the goal of investing is
that your money will grow over
time and be there for you to live
off of once you've exited the workforce.
The earlier you start investing,
the more time your money has to grow.
Earn extra income like dividends,
which are sums of money paid regularly,
typically quarterly, by a company to
its shareholders out of its profits or reserves.
Protection against inflation.
The rate of monetary inflation is,
on average, two percent per year.
If you invest in the stock market,
which on average returns seven percent growth,
you protect your money against losing economic power.
So how do we start investing?
All the advice about investing in
the stock market for the beginner doesn't
mean much if you don't actually have a way to buy stocks.
For that, you need a brokerage account.
A brokerage account simply allows you to
buy and sell stocks and other investments,
but you can take multiple routes here.
A standard taxable brokerage account
is exactly that, taxable.
But most brokerages also offer
retirement accounts that come with great tax benefits.
A Roth IRA, for example,
is still a brokerage account,
but even more benefits for long-term investors.
Many brokerages have gotten rid of
trading fees on individual stocks,
so it's easier than ever to start investing.
But there's a couple of things you should
consider before choosing your brokerage account.
To name a few, what fees or commission do they charge,
do they offer automated investments,
do they offer fractional shares
or do you have to buy a whole stock,
how is their application and website usability?
This account will be your gateway to investing.
It's important to research
which brokerage account matches your investment style.
Whatever you invest in,
we advocate for a long-term focus.
It is possible to make money in
the short term on the stock market if you're very lucky.
However, at The Motley Fool,
we believe in a diverse portfolio and
long-term growth to see the best overall returns.
Let's go shopping.
The stock market, the place
where you can buy and sell stocks.
The stock market is open Monday to Friday,
9: 30 A.M. to 4:00 P.M. Eastern Standard Time.
I want to break down the types of investments into
two categories, active and passive.
Active investing requires a hands-on approach,
typically, by a portfolio manager or yourself.
Passive investing involves buying into
a curated grouping of companies or securities.
Let's start with active.
An individual stock.
A stock represents a piece of
ownership in a company or a share.
By owning stock in a company,
you are a part-owner of that business.
You have stake in the business's success
now and in the company's future
for as long as you continue to own
your shares. Mutual funds.
A mutual fund is
a professionally-managed investment fund that
pools money together for
many investors to purchase securities.
Because these often involve a manager
actively making investments on your behalf,
you'll want to watch out for steep fees.
Now, passive.
The prime example of a passive approach is to buy
an index that follows something like
the S&P 500. Index fund.
An index fund tracks
an index or a defined collection of stocks.
These could be well-known groupings of
stocks like the S&P 500,
500 of the largest companies in the stock market,
or simpler groupings of stocks within a certain sector,
like tech stocks or healthcare stocks.
This is a super-easy way to diversify.
You aren't putting all your money on one company.
That way, it's a less risky option
if one company doesn't perform well.
ETF. most often,
exchange-traded funds operate as index funds,
easily tracking large groups of stocks.
The special distinction as an ETF simply means you can
trade these in the stock market the
same way you would an individual stock.
REITs or a Real Estate Investment Trust
is a company that owns,
and in most cases, operates income-producing real estate.
REITs own many types of commercial real estate,
ranging from office and
apartment buildings to warehouses,
hospitals, shopping centers,
hotels, and commercial forests.
You did it, made it to the end.
Hopefully you learned a lot from
this video and feel more comfortable
taking the first steps to invest into the stock market.
Often, a lot of people make investing
into the stock market more difficult than it needs to be.
At the Motley Fool,
our purpose is to make the world
smarter, happier, and richer.