Navigating how to invest and what to invest in can be complicated, but knowing the right choices to make can lead to profits down the line (courtesy of creative commons).
Money can absolutely buy you happiness—that is why it exists. If you someday want to own a home, travel across Europe or even pay for your tuition, you are going to need some. At a bare minimum, a salary-earning career is certainly something I would recommend. However, relying on a job alone, without learning to save and invest, will make achieving your goals a lot harder. Warren Buffet said it best, “If you don’t find a way to make money while you sleep, you will work until you die.”
Before we get into it, you should know that investing is not a get rich quick scheme. If it only took a week to double your money, everyone you know would be a millionaire. Making good, stable money in the stock market takes time and discipline. Many have tried to “outsmart the system” by putting all of their money into a bunch of penny stocks (small, very risky companies) or even trying to invest in complex financial products. While losing half of your money in the course of a week is a great way to learn about risk (Yes, I’m speaking from experience), I would not recommend it. If you want to learn how to make good money the safe way, and skip the going broke part, I encourage you to take notes.
For this article, I will simplify investing to purchasing stocks—pieces of partial ownership of companies like Apple or Amazon. In order to purchase stocks, you will need to find a “broker” to buy them through. In the old days a broker was an actual person you had to call (hair gel optional), but today there are a number of websites that offer the same service. While there are dozens of brokers out there, I would recommend Robinhood for its simple user-friendly design, among other factors. The service also has no minimum required balance and is completely free to use, something unheard of even a couple of years ago.
Once you have set up an account and transfer money in, the final step is to decide what to invest in. Now, even though the guys on Wall Street have tried, there is no way to know for sure which stocks will perform the best. However, there are a number of general rules that experts believe will set you up for success.
When it comes to picking companies to invest in, bigger is better, and stick to what you know. If you’re new to investing, large Fortune 500 companies like Walmart or Verizon are great investments that are considerably less risky and tend to make strong profits over time. Additionally, when it comes to picking stocks for yourself, stick to companies you’ve heard of or whose products you use. As simple as it sounds, if you see people around you all buying a particular product, it probably wouldn’t be a bad idea to invest in that company.
Now, the most important rule is as old as time: diversify. Instead of putting all of your money into a single stock, it is better to invest in a number of different companies that are also in a number of different industries. For example, if you were to only buy stock in Ford, General Motors and Chrysler, you would not truly be diversified because all of these companies make cars. If every American decided to buy less cars, all of your stocks would lose money. If you instead invested in Apple, Bank of America and Coca-Cola, you would be invested not only in three different companies, but in three relatively unrelated industries. Diversifying has proven over time to make investing less risky and more profitable.
On one final note, investing in stocks is inherently risky and it takes a lot of experience to become good at it. I would certainly suggest not putting your entire savings in all at once. But if you put in the time to read financial news, research your companies and learn from your mistakes, you will be rewarded. Yes, that reward is money.