Financial Success: Learn About Stocks Before You Invest

Interested in investing* but feeling intimidated? If you’re wondering what you need to learn about stocks and the stock market before you get started, you’re in the right place.

Here’s a brief look at what you need to know to start investing and grow your wealth.

Why Investing Matters

Investing can provide a great way to increase your net worth and build wealth over time, thanks to compounding returns. In other words, when you invest and earn a return on your investment, that return is added to the total amount of money you have. If it stays invested, that money can earn a return — and so on, building exponentially.

You can’t get this from simply saving in a bank account with a 1 percent interest rate. Assuming you saved $100 per month for 30 years in a savings account, you’d end up with $41,741.87 total. Investing’s exponential effect, on the other hand, can turn $100 per month into $113,352.94 in 30 years, assuming a 5 percent return.

What Do You Need to Learn About Stocks to Start Investing?

While investing is a powerful tool that can help you generate more money, it’s not without risk. In fact, every investment you make comes with risk, and there are no guarantees that you’ll make money — or that you won’t lose it.

Here are a few basics you should understand before investing.

A stock represents a unit of ownership in a company. While that doesn’t mean you own the company itself, you do hold a share in it, which makes you a shareholder.

It’s possible to create your portfolio by choosing stocks from individual companies. But this can be complicated, expensive and extremely risky. Instead, you might want to consider buying mutual funds or exchange-traded funds (ETFs).

A mutual fund is a collection of stocks, bonds or other securities. They allow you to pool your money with other investors to access assets you might not be able to buy on your own, but they don’t trade in quite the same way stocks do. ETFs are like mutual funds in that you buy multiple securities instead of buying individually, but ETFs still trade like stocks.

No matter how you invest in stocks, avoid investing only in stocks. Diversification is a critical strategy that helps mitigate some of the risks of investing. Holding the majority of your portfolio in stocks may make sense while you’re still in your 20s or 30s and have time to watch the ups and downs balance out. But as you get closer to retirement, you’ll want your portfolio to have more stability. That’s where less-risky (but less-lucrative) options like bonds become more important.

You Don’t Have to Learn Everything Before You Invest

This is only skimming the surface of how much there is to learn about stocks. Investing is a wide and deep subject, and it’s important to understand what you’re investing in — and the associated risks — before you start.

At the same time, taking some action is usually better than doing nothing at all. How can you start while you’re still learning? Consider meeting with a Financial Advisor to learn more about investing.

Also, look into using a dollar-cost averaging strategy, which may cushion the blow of some losses. This means contributing a set amount of money each month to the investment account where you hold different funds. If you contribute this amount every month, regardless of what the market is doing, over the long term your average return is likely to be higher than if you tried to time the market or frequently trade different stocks. It’s a simple, steady and hands-off strategy that could allow you to do the most important thing: get started.

*Investment products are offered through Key Investment Services LLC (KIS), member FINRA/SIPC. KIS is affiliated with KeyBank National Association (KeyBank). Investment products made available through KIS are:

KIS disclosure

KIS and KeyBank are separate entities, and when you buy or sell securities you are doing business with KIS, and not KeyBank.

You are about to leave the KeyBank site and will be redirected to a website outside of our control. Please confirm below by hitting "Continue" or stay on this page by hitting "Cancel".

Cancel

Continue