“I want to start investing, but I don’t know enough about stocks yet.” We hear this a lot.
Probably because the media loves to chatter about the stock market. That’s because, on a day-to-day — or even hour-to-hour — basis, the market often goes up and down (and up and down). Same thing for individual stocks. And some view the stock market as an indicator of what might happen with the economy overall.
So we understand why you might feel like you need to become a quasi-expert on stocks before you can start investing. But here’s the thing: You don’t.
A quick definition
Stocks aren’t the only way to invest, but often, they go hand-in-hand with investing in our minds. And with good reason — stocks are a big part of most people’s investment portfolios, thanks to the long-term positive returns that they’ve posted in the past.
Stocks are small slices of ownership in public companies. Anyone who owns a company’s stock is called a shareholder, and shareholders often get to vote on big decisions about how the company is run.
As a company does well, the value of its stock typically goes up. On the other hand, if the company performs poorly, its stock typically goes down. The health of the broader economy can also influence stock prices. Also, sometimes, the company might share a percentage of its profits with shareholders — aka pay out dividends. All that’s how investors can earn (or lose) money by investing in stocks.
So, what do you actually need to learn about stocks to get started?
The answer is: Virtually nothing.
You don’t need to study individual stocks
You don’t have to know which companies have done well in the past and which ones “experts” think will do well in the future. You don’t have to know which stocks people recommend buying or selling. That’s because nobody knows what’s going to happen tomorrow — not your friend’s dad who says Amazon stock is a sure thing, not the guys on TV who tell you every time Facebook’s stock goes up or down, and not even people who are paid to make predictions about the market’s future. In fact, making investment decisions based on any kind of guesswork has historically proven to be a pretty bad strategy.
At Ellevest, we don’t even try to pick individual stocks. That’s right — you won’t see them in any Ellevest member’s investment portfolios. Instead, we invest in the stock market using stock exchange-traded funds (ETFs), which are baskets of lots of different stocks all pooled together. One share of an ETF is typically less risky than one share of one stock, because what affects one company isn’t as likely to affect an entire fund. (In other words, ETFs give your portfolio more diversification.) Plus, they tend to have low fees.
You don’t even have to know how to buy and sell stocks (or stock ETFs) yourself. With Ellevest, you tell us about yourself and your future money goals, and we’ll recommend an entire investment portfolio designed to help you get there, including not only stock ETFs, but also ETFs that contain bonds and alternative investments (our good friend diversification once again). Then all you have to do is deposit money into your account, and we’ll invest that money on your behalf. Tbh, it can be pretty set-it-and-forget-it.
You don’t need to follow the stock market
You also don’t need to know what’s going on in the economy or with international trade or whether people are speculating about a future market downturn. Because again, nobody knows what’s going to happen tomorrow.
And if you’re investing for the long term, it doesn’t really matter, anyway. Research shows that in the past, investors have been better off investing consistently no matter what’s going on in the market. It’s gone up some years and down some years, but historically, the stock market has returned a long-term average of 9.8% a year. And the fastest way to recover losses from past market downturns has been to keep investing all the way through them.
There’s literally just one key thing
It’s the fact that investing in the stock market (or any investing markets) comes with risk. Sometimes your investment account will go up in value, and sometimes it will go down in value. There are no guarantees. We still believe investing in a diversified portfolio can give you a better chance of hitting your long-term money goals than simply saving can, thanks to those historical returns we mentioned above — but we don’t want to send you in there blind.
If you’re a naturally curious person and want to learn more (we see you, Ravenclaws) — then we have a few places for you to start. You can check out our explainers on how investments can make money, all the benefits of using ETFs, and exactly why you should start investing ASAP and consistently.
But here’s the truth: None of those articles are required reading before you can get started. We hereby dub you ready to start investing.
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The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.
Information was obtained from third party sources which we believe to be reliable but are not guaranteed for accuracy or completeness.
Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
The practice of investing a fixed dollar amount on a regular basis does not ensure a profit and does not protect against loss in declining markets. It involves continuous investing regardless of fluctuating price levels. Investors should consider their ability to continue investing through periods of fluctuating market conditions.
Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.
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