Here's how to get started investing
- Investing is super important, but not everyone knows how or where to begin.
- There's an entire investing ecosystem that gives new investors access to financial markets.
- Here's everything you need to know to get started.
That comfy retirement you've always dreamed of will require a sizeable nest egg, so it's wise to start investing early.
Nobody can guarantee an investment will make money, of course. But over time, betting your dollars on stocks and bonds should fund the retirement lifestyle you're hoping for.
And if you're wondering how to get started, Business Insider is here to help.
There are entire institutions that exist almost solely for the purpose of giving people access to financial markets in a way that enables them to invest responsibly, and with advice from the experts.
So you've decided you want to make your own investment decisions
Let's say you've decided you want to invest $100 in the stock of Company A. That's where brokers come in. A broker is a financial agent who executes trades for a client. Of course, the broker has to get paid. Usually, there's a small fee per trade, and sometimes a flat fee paid yearly.
An investor contacts his or her broker in order to buy or sell shares or bonds of a specific company. Sometimes the broker will try to buy at the lowest price possible, or sell for the highest possible price. That depends on the type of order the investor requests. On buy or sell orders that do not request negotiation, the broker will transact at market price.
Brokers can also advise the client on which securities to buy or sell, and when to do so. This is called a "full-service broker." There are now "discount brokers," which are usually online and cheaper than full-service ones. Some examples: Charles Schwab, Etrade, TD Ameritrade.
New and online-only brokerage platforms like Robinhood and Stash, cost next-to-nothing and are largely targeted towards younger, less wealthy investors.
Or maybe you've decided you don't have the time or knowledge to choose your own investments
That's where funds come in to the mix. Funds pool together money from lots of different investors. There are equity funds (those that buy stocks), fixed-income funds (those that buy bonds), and lots in between.
Now, you can either invest in mutual funds, or something called an exchange-traded fund.
Mutual funds pool together money from tons of investors, for fund managers to actively manage. Those managers pick the securities they think will help them beat the market. In this scenario, the investor buys shares in a mutual fund, and the percentage of the fund an investor owns is the percentage of the gains he or she is entitled to.
For example, if investors pool together $100 into a fund, and investor A puts in $10 - he or she is entitled to 10% of the gains. Every fund charges each investor a fee that is a certain percentage of the total assets held by the fund (assets under management, or AUM). That rate is the same for every investor.
There are also exchange-traded funds, or ETFs. These are similar to mutual fund, but there is no fund manager actively picking securities. Instead, the ETF tracks an index made up of a group of securities, and fund aims to deliver returns matching those of the index.
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