The stock market remains, by and large, a man’s world. While we’re often told that investing plays a key role in our financial wellbeing, participating in the stock market can be a downright confounding experience for newbies everywhere, especially women. In a recent study by Merrill Lynch, 41 percent of female respondents said their biggest financial regret is not investing more, while 59 percent said they were not doing a good job using investing as a tool for achieving their financial goals.
The biggest reason for women not investing more? Not having the knowledge to do so. Of the study’s respondents, 60 percent of women said not having the financial know-how proved the biggest barrier to entry into buying stocks for the first time, followed by not having the confidence to do so.
The process of investing can seem tricky and be intimidating. But it doesn’t have to be. Remember, you don’t need a whole lot of money to get started. Getting over fears of the stock market, though, comes down to getting over a fear of the unknown. And that means starting with the basics. Here’s what you need to know before buying stocks for the first time.
Understand the difference between trading and investing
It sounds simple, but it can be easy to confuse “trading” with “investing,” says Tela Holcomb, creator of Trade Your 9 to 5, which offers e-courses on how to join the stock market. When you’re investing in a company, Holcomb says, you’re buying a percentage of the company that you’re hoping to hold on to for a few years. If you’re investing in stocks, you’re also becoming a partial owner of the company. If you’re trading, however, you’re looking to buy and sell stock within a short time frame by predicting how much the price of a share will rise in a given amount of time.
Know the different roles stocks and bonds play
You’ve probably already heard of stocks and bonds, but while both are ways that a company raises money, there are key differences. Pamela Capalad, a certified financial planner and founder of Brunch and Budget, previously broke down the difference with this little rhyme for Girlboss: “Stocks, you’re an owner; bonds, you’re a loaner.” A company’s stock price can fluctuate depending on many variables (including good or bad press), so investing in stocks is a riskier tactic, though doing so means that you own a teeny, tiny portion of a company. If a company issues bonds, however, they are essentially borrowing the money from investors, whom they’ll pay back the amount with a set interest rate.
Get real about your objectives
Before you go about buying stocks for the first time, it’s a good idea to break down your short and long-term goals. Why are you investing your money and what are you hoping to get out of the stock market? “Are you looking for aggressive growth [or] extra income from a steady dividend?” Jordan Sowhangar, a certified financial planner and wealth advisor at Univest Investments, says. Having those answers will help determine what kind of portfolio you’re looking to build. Secondly, it’s important to understand the level of risk involved. “You do not want to start picking and investing in stocks with money that you know you will need for a down payment on a house less than a year from now,” Sowhangar says.
Get a brokerage account and set your share amount
Okay, so you’ve done your research and you’ve outlined some financial goals for yourself. It’s up to you whether you decide to work with a broker or do things on your own via an online platform, but once you’ve made your choice, it’s time to set up a brokerage account. These days, you can easily set up an account and decide how you’d like to fund it in less than five minutes, Ellie Thompson, CEO of financial consulting firm Money Therapy, says. (NerdWallet has a helpful list of the best online brokerage platforms for beginners.) The easiest way, she says, is to link your brokerage account to your bank account so that you can add money directly without investing in an actual stock. Instead, it sits in a holding position called a “cash position” until you decide where you’d like to invest it.
Pick an investment you’re knowledgeable about
It can be tempting to want to buy only stock from the big-name companies you hear about in the news. Chances are, however, that stock prices for those companies are already really high and, if you did buy, you’d own a miniscule share without too much room for growth. It’s always a good idea when buying stocks for the first time to start with industries that you’re extremely familiar with, since you’ll have insight that other traders won’t, Holcomb says. That knowledge will ultimately help you make more informed decisions about a company’s overall well-being and financial prospects.
Finally, remember that investing is a game you play for the long-run. “Be patient with yourself and choose one stock to start with,” Thompson says. “You have years to create a great portfolio but for now you are learning the basics.” The good thing is that the sooner you start, the better off you’ll be!
Reminder: Always speak to a licensed financial services provider or specialist before making decisions that could affect your financial wellbeing.
For Financial Literacy Month this April, we’re rounding up our favorite articles and resources on saving money, earning more, and spending wisely, so you can take control of your financial situation. Follow along all month for the features that’ll help you navigate money matters on your own terms—like this one.
This story was originally published on May 29, 2018. It has been updated (and will continue to be updated) to include new tips, advice, and guidance, to ensure we are always giving you the best, most valuable resources.