For many, the stock market is a mystery. But investing can be a great way to build wealth, and you need to know how to get started. The more you learn about stocks, the more you understand how the market works, and it won’t seem intimidating.
Some 39 percent of adults say they have no money invested in the stock market, according to a survey from Bankrate that polled more than 2,500 people. Fifty-six percent said lack of resources had stopped them from investing; 32 percent said it was a lack of knowledge.
“People who aren’t investing predominantly say it’s because they don’t have the money available to invest, or they don’t understand stocks,” Greg McBride, chief financial analyst for Bankrate, told Grow, a money management website from Acorns investment app.
Blacks Investors on the Rise
More Black Americans became first-time investors in 2020 than any other year, the Ariel Investments-Schwab Black Investor Survey found. Last year, there were 15 percent new Black investors compared to only 4 percent new white investors.
The interest in the stock market among younger Blacks may help to close the wealth gap. There’s a nearly equal number of younger Black investors against their white counterparts under 40 years old, according to personal finance expert and president of Charles Schwab Foundation Carrie Schwab-Pomerantz, as she told Yahoo Finance Live.
“Black Americans are talking more today about all aspects of money — debt, paying for college, and the stock market. And that’s the beginning of financial security because it demystifies some of the language around money,” she says.
Investing Basics
Shares: First off, a share of stock is a piece of the ownership of a company. When you purchase a share of stock, you’re entitled to a small fraction of the assets and earnings of that company, as outlined by How Things Work.
Assets: Included under assets are everything the company owns (buildings, equipment, trademarks).
Earnings: When you talk about earnings, they are all of the money the company brings in from selling its products and services.
Stock exchange: Stocks in publicly traded companies are bought and sold at a stock market (also called a stock exchange). One stock exchange in the U.S. is the New York Stock Exchange, located on Wall Street in New York City. There are three big stock exchanges in the country: NYSE, AMEX (American Stock Exchange), and NASDAQ (National Association of Securities Dealers).
Stockbroker: A stockbroker is an agent who can buy and sell your stocks on the stock exchange.
Shareholder: Once you purchase stock in a company, you are considered a shareholder in that firm.
Stock prices: Prices are not fixed. As soon as a stock is sold to the public, its price will increase and drop based on free-market forces.
Free market forces: Market forces can be influenced by changes in supply and demand.
Explaining Stock Averages
We hear stock numbers reported every day on the news. These numbers are called the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite Index. These are not individual stock prices but market averages designed to give stock followers a general idea of how companies traded on the stock market are performing.
For example, the Dow Jones Industrial Average is the sum of the value of 30 large American stocks divided by the number of companies plus any stock splits, How Things Works states. The S&P 500 is the average value of 500 of these large companies. At the same time, the NASDAQ Composite is the average of all stocks listed on the NASDAQ exchange (more than 2,800) and includes both domestic and international companies.
Do Your Homework
Before investing your money, you should learn as much as possible about the stock market. “If you want to learn more about investing in stocks, I think you should take your time and do self-study or talk to an investment professional,” Jay Jones, Merrill Lynch stockbroker and creator of the Black Entrepreneur Blueprint, told Finurah.
Jones recommends following such sites as the Wall Street Journal, Barron’s, Kiplinger’s Personal Finance, The Economist, Bloomberg Businessweek, Forbes, Grant’s Interest Rate Observer, and Investor’s Business Daily. He also suggests watching financial news programs such as “Mad Money with Jim Cramer” and “Squawk Box,” both on CNBC.
“As for books, I would look at several books like ‘The Little Book of Common Sense Investing’ by John C. Bogle and ‘The Warren Buffett Way’ by Warren Buffett,” advises Jones.
Stocks, bonds, or mutual funds? Which assets should they invest in first
What you invest in depends on your investment goals. “Investment profiles are like fingerprints; each one is different,” notes Jones. “Some of the things to consider are: How much investment experience do they have? What is their investment objective? Are they investing for the long term or for short-term gains, plus a plethora of other questions that need to be considered?”
Experts usually suggest investors should start off with mutual funds. Since mutual funds are comprised of multiple investments within that fund, they offer a diverse portfolio. You can choose from income funds, growth funds, or growth and income funds in addition to other types of mutual funds.
The next tier is investing in bonds that can come in government bonds or corporate bonds. “Bonds are usually considered a defensive investment to help protect or balance out your portfolio. I would consider investing in individual stocks as the most advanced form of investing because you have less diversification investing in single stocks,” offers Jones.
“Individual stocks can fluctuate very quickly and can result in instant growth or instant loss in value. If you want to test investing in individual stocks, you can create a dummy portfolio of stocks and track your investment return.”
How Much You Should Invest with to Start
First, determine your goals and objectives; then create a plan to reach those goals and objectives in a specific period.
“Second, you have to realistically determine how much money you can invest each month in putting towards your investment plan,” says Jones. “If you have a corporate retirement or investment plan at work, I would recommend you start investing in the program as soon as possible, especially if they do matching contributions.”
Investing With App or Brokerage Firm
According to Jones, “Robinhood is an easy way to start investing, and it’s very simple. If you require more control or more options, you can go to a self-service platform like Fidelity Investment or Charles Schwab.”
He adds, “If you’re working with a sizable portfolio, I recommend you find a full-service brokerage firm like Morgan Stanley, JP Morgan, Merrill Lynch, or similar firms.”
