Stock Investments

Investing is a time-tested way of putting your money to work for you, as you work to earn more of it.

By investing your money regularly, you may be able to increase it many times over with time. That's why it's important to begin investing as early as possible and as soon as you have some money saved for that purpose. Furthermore, the stock market is a good place to start.

Whether you have $1,000 set aside or can manage only an extra $25 a week, you can get started. Bear in mind that there's a lot that you can and should learn about investing in stocks to achieve financial success. However, right now, read on for the steps to begin the process.

Steps to Get Started

What's your tolerance for risk (the chance that you may lose money while investing)? Stocks are categorized in various ways, such as large capitalization stocks, small cap stocks, aggressive growth stocks, and value stocks. They all have different levels of risk. Once you determine your risk tolerance, you can set your investment sights on the stocks that complement it.

You should also determine your investment goals. When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals (and the aforementioned level of risk that you’re willing to take).

• If you're just beginning your career, an investment goal could be to increase the amount of money in your account. If you're older, you may want to generate income as well as grow and protect your wealth.

• Your investment goals might include buying a house, funding your retirement, or saving for tuition. Goals can change over time. Just make sure that you define and review them periodically so that you can keep your focus on achieving them.

Diversification is an important investment concept to understand. In a nutshell, by investing in a range of assets, or diversifying, you reduce the risk that one investment’s performance can severely hurt the return of your overall investment portfolio. You could think of it as financial jargon for not putting all of your eggs in one basket.

It can be difficult to diversify when investing in individual stocks if your budget is limited. For example, with just $1,000, you may only be able to invest in one or two companies. This results in greater risk.

This is where mutual funds and ETFs can help. Both types of funds tend to own a large number of stocks and other investments. This makes them a more diversified option than a single stock.

Minimums to Open an Account
Many financial institutions have minimum deposit requirements. In other words, they won’t accept your account application unless you deposit a certain amount of money.

It pays to shop around, and not just to find out minimum deposits. Check out our broker reviews (see below). Some firms don't require minimum deposits. Others may reduce costs, such as trading fees and account management fees if you have a balance above a certain threshold. Still others may offer a certain number of commission-free trades for opening an account.

The Costs to Invest in Stocks

As economists like to say, there's no free lunch. All brokers have to make money from their customers in one way or another.

In most cases, your broker will charge a commission every time that you trade stocks, whether you buy or sell. Trading fees range from $2 per trade to as high as $10. Some brokers charge no trade commissions at all, but they make up for it with other fees.

Depending on how often you trade, these fees can add up, affect your portfolio's return, and deplete the amount of money you have to invest.

Here's an example: Imagine that you decide to buy one share of stock in each of five companies with your $1,000. Assuming a transaction fee of $10, you will incur $50 in trading costs which is equivalent to five percent of your $1,000.

Should you sell these stocks, the round trip (the act of buying and then selling) would cost you a total of $100, or 10 percent of your initial deposit amount of $1,000. These costs alone can eat into your account balance before your investments even have a chance to earn a positive return.

Full-service brokers, as the name implies, offer a full range of traditional brokerage services, including financial advice for college planning, retirement planning, estate planning, and for other life events and opportunities. This custom-tailored advice justifies the higher fees that they typically charge, compared to other brokers. These can include a percentage of your transactions, a percentage of your assets under management, and sometimes, a yearly membership fee. Minimum account sizes can start at $25,000.

Discount brokers used to be the exception but are now the norm. They offer you tools to select your investments and place your orders. Some also offer a set-it-and-forget-it robo-advisory service (more below). Many provide educational materials on their sites and mobile apps, which can be helpful for beginning investors.

Some brokers have no (or very low) minimum deposit restrictions. However, they may have other requirements and fees. Be sure to check on both of these as you look for a brokerage account that meets your stock investing needs.

Full-service brokers provide a broad array of financial services, including financial advice for retirement, healthcare, education, and more. They can also offer a host of investment products and educational resources. They have traditionally catered to high-net-worth individuals and often require significant investments. Discount brokers have much lower thresholds for access, but tend to offer a more streamlined set of services. Discount brokers allow users to place individual trades. They also offer educational tools.

Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. All investing comes with some degree of risk. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk in order to achieve their financial goals, whether these goals are short- or long-term.

Most brokers charge customers a commission for every trade. These fees can go up to about $10 per trade. Due to commission costs, investors generally find it prudent to limit the total number of trades that they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, carry fees in order to cover the costs of fund management.

The Bottom Line

If you're just starting out as an investor, it's possible to invest in stocks with a relatively small amount of money. You'll have to do your homework to determine your investment goals, your risk tolerance, and the costs associated with investing in stocks and mutual funds. You should also investigate various brokers to clarify the particular requirements of each and which may best fit your needs.

Once you do, you’ll be well positioned to take advantage of the substantial potential that stocks have to reward you financially throughout the years.