How to Start Investing in Securities in 2022

January 3, 2022

It is a new year and it might be time to start thinking about how you can make more money. One strategy for making money over time is investing in securities, such as stocks and bonds. When investing in securities, your capital (money) goes into an investment vehicle that pays you dividends or interest over time.

With the power of compound returns, there are many stories of average people who have turned $100 into millions by investing in the stock market. An example: if you put $10,000 into a S&P 500 index fund and reinvest all dividends paid out since 1950 to today, your $10,000 would be worth $200 million at the end of 2013! That’s not chump change.

So, how do you start investing in securities today? The process is actually quite simple.

5 Basic Steps to Start Investing Today

Securities and investments in America can become way too complex, way too fast. Trust me, I understand that. By following this 5 basic steps you can start investing today and see your money grow.

Step 1: Start with a Small Amount of Money

Even if it is just $25 from your last paycheck, you can invest that money and begin making money right now. To increase the returns on your investment, you have to take more risk by investing in volatile stocks, actively managed mutual funds, or even over-the-counter stocks. However, the stock market has historically returned about 10% a year so a conservative approach can still be rewarding with less capital invested.

Investing with small amounts of money also helps minimize risk compared to larger sums of money because you will not need to sell any equity (shares) during a bear market (a market in which the prices of securities are falling) to cover your living expenses. Selling equity during a bear market can lock in losses and extend the time it takes to break even. Keeping your money invested in stocks allows you to ride out the market downturn and invest more when prices fall.

Step 2: Decide on Your Strategy

To maximize returns, there are thousands of different securities available to buy with differing levels of risk associated with each security type. Once you decide on a strategy for your investment portfolio, it is important to allocate your funds across different types of securities that will help you reach your financial goals. For example, if you are saving for retirement, you’ll want to invest in stocks and bonds as they have a history of outperforming other asset classes in the long run.

If you don’t want to worry about picking specific stocks or funds, you can invest in a low-cost mutual fund or exchange traded fund (ETF). These funds hold a basket of stocks or bonds and can offer investors exposure to different parts of the market with a single purchase.

Step 3: Decide What Type of Account You Want

There are two main types of accounts that people use to invest in the stock market: taxable accounts and tax-deferred accounts. A taxable account is a regular brokerage account where you will pay taxes on any dividends and capital gains (profit when you sell a security) earned each year.

A tax-deferred account, such as an IRA or 401k, allows you to delay paying taxes on the investment until you withdraw the money in retirement. This can be a great way to reduce your current tax bill and allow your investment to grow unhindered over time.

Step 4: Choose a Brokerage Firm

The next step is to choose a brokerage firm to invest with. This is the company that will help you buy and sell securities. When choosing a brokerage firm, it is important to look for one that offers low fees and has a wide selection of investments to choose from. Robert Pearce, a lawyer handling securities and investment fraud for over 40 years, recommends using BrokerCheck before choosing you a broker or brokerage firm to work with. BrokerCheck is a free online tool provided by FINRA that allows you to check the backgrounds of brokers and investment advisors.

Step 5: Open an Account and Fund It

Once you have chosen a brokerage firm, the final step is to open an account and fund it. You can do this by visiting the firm’s website or by calling their customer service line. Be prepared to provide your name, address, social security number, and contact information.

You will also need to fund your account with at least the minimum required deposit (usually $1,000) in order to buy securities. Once your account is funded, you are ready to start investing!

Bonus Step: Buy and Sell Securities to Make Money

The final step is where the fun really begins. You simply need to choose a security to buy and then place an order. Once the trade executes (meaning that your money is exchanged for securities), you can monitor how your investments are performing by checking account statements or using online tools such as Yahoo! Finance or Google Finance.