One of the essentials of building wealth over time is investing. There just isn’t another way that is as effective at creating a nice chunk of wealth over time. You can put your money in a savings account, but your returns are going to be so low that you will be unlikely to even beat inflation.
The good news is that investing doesn’t have to be very hard. Buying shares is easier than ever, thanks to the Internet and the new investment tools that have been developed in the last few years. Just about anyone can get started.
Opening a Brokerage Account
The first thing you need to do when buying shares of anything — whether it’s an individual equity, mutual fund, or an ETF — is to open a brokerage account.
You don’t have to be rich to open an account; there is no shortage of online discount brokerages perfectly willing to facilitate your efforts. Gather your personal information, and look for a brokerage account with reasonable transaction fees and other terms, and with the investment choices you prefer.
In order to open a brokerage account, you will need to provide personal information about who you are and where you live. You will also need to give information about your bank account so that you can fund your brokerage account. Once your account is open and funded, you can begin buying shares.
Choosing Shares
One of the reasons that investing is so intimidating to so many people has to do with the research part of buying shares. It’s true that you want to evaluate your purchases so that you don’t make a huge blunder that results in losses.
The best thing for a beginner to do is to invest in a mutual fund. There are a number of mutual funds based on indexes. These are great because you can buy shares of an index mutual fund and basically gain exposure to every investment on that index. It’s an easy way to get diversity while limiting your risk for the long haul. Many beginning investors like to choose a major index, or an all-market index fund, since, over long periods of time, the stock market hasn’t lost out yet. If you have a time frame of 20 to 30 years, buying shares of an all-market index fund can be a reasonable choice.
Once you get started, though, there’s no reason that you can’t start learning about investing so that you can buy shares of individual equities. Educate yourself about understanding company balance sheets and things like P/E ratio and PEG. These are analysis tools that you can use to help you identify undervalued stocks that are potential winners.
You can also use modern tools offered by many brokerages, such as the latest news and stock screeners, to help you identify likely investments. Once you get used to using these tools, and understand analysis, you can add individual shares to your portfolio. It’s just as easy to buy shares of individual stocks as it is when you’re buying shares of mutual funds.
With a little education, and the will to get started, there’s no reason that you can’t begin building wealth over time.
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