Before we even get started we want to assure you of something: You have what it takes to be a great investor. You have already taken the leap and started researching the best way to invest for beginners and here you are. We’re here to help and we hope you take something useful from this article!
With that out of the way we can get started.
Analyze your current financial situation
Do you have enough money saved up so that if you lost everything you invested you would be fine? Many people approach investing with too eager of a mindset and lose money they can’t afford to lose. This is not the correct way to do things. Investing takes time and patience and it is not something you will be good at immediately. It might take a while but as long as you are investing money you can afford to lose, then you are putting yourself in the right position to succeed. Of course there are many other ways to invest large sums of money. But for a beginner, it's always best to start small.
Evaluate what account suits you best
There are dozens of different investing and trading accounts you can setup. Finding the right one for you can be difficult.
Individual Brokerage Account – Allows an adult to buy and sell securities with money they have deposited in their brokerage account. You can purchase a wide range of investments including stocks, mutual funds, options and futures. All gains from your investments and dividends are taxed in the year they are sold. Moreover you have the option to trade with cash (the money you deposited) or sometimes margin (money borrowed from the broker).
Retirement Account – Think a brokerage account exclusively for retirement. While you can buy and sell stocks much like you can with an individual brokerage account, a retirement account has some tax advantages. The most common types of retirement accounts: IRA and Roth IRA. To be eligible you must have earned income and unlike a typical brokerage account there are limitations to how much you can contribute to your IRA each year.
Custodial Accounts – Allows a minor to invest under the name and supervision of an adult. Each of the above accounts require you to be at least 18 and in some cases, 21 years of age. The barriers to entry are higher for minors looking to invest their money. However custodial accounts allow an adult (usually a parent or guardian) to invest on their child’s behalf. While the adult (custodian) controls the account, the child can be invested under the adult’s supervision until the child reaches the age of majority, when the account can be legally transferred to the child - now an adult.
There are two types of custodial accounts: Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). These accounts differ in what you can contribute. UTMA accounts allow transfers of a broader range of investments such as real estate while UGMA accounts are limited to financial products only such as stocks and bonds (A Loved custodial account is a UGMA account!)
Now that you have evaluated your financials read through the different types of accounts available to you, it is time to decide what might suit you best.
The best place to invest for beginners will be an account or brokerage that offers educational content and whose platform is easy to navigate. Typical brokerage account platforms do not always offer this. These are crucial in starting your journey as an investor and can drastically reduce the learning curve so finding the right one is essential.
Another concern is how much you can invest. Many brokerage accounts have a minimum you need to deposit and this number can be in the thousands and if you’re a teenager, you probably don’t have that much money to invest and you’re even too young to open an account! Moreover, many start investing under the assumption they have found they best stocks to invest for beginners and so use margin (borrowed money) in their brokerage account to invest. This is not a smart move for a beginner.
A custodial account may be the right option for you if you’re a minor (or an adult that wants to invest in a child's future), lack investing experience and don’t have much money. Loved offers custodial accounts with fee-free investing. You can Start invest Here with as little as $1 and learn while you do so with the educational content we provide!