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Are you ready to start investing in the stock market? Since we are looking to achieve early financial freedom, we cannot just save our way to a million dollars—that would take forever. You have to invest your money. In this article, I am going to show you how to invest in the stock market for beginners.

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Stop Saving Your Money

As stated before, you cannot just save to achieve financial freedom. In fact, saving money alone is counterproductive to achieving financial freedom because of inflation.

Inflation is the rate at which the general prices of goods and services rise; and as a result, the purchasing power of money falls. In the United States, the historical average rate of inflation is approximately 3%.

If you are only saving your money, and not investing it, your money is actually eroding every year. This is because the cost of living is increasing faster than any rate of return offered to you by a bank.

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Let me give you an example. Let’s say you found a savings account that offered you a “generous” annual percentage yield (APY) of 1%. That means for every $100 saved, you will earn $1 in interest annually.

However, the average historical rate of inflation is approximately 3%. So something that costs $100 this year will probably cost $103 next year. Since you only have $101 in your savings account next year, you have actually lost $2 in purchasing power.

If your money does not grow to meet the rise in prices over time, the effect will essentially be as though you are losing money. Therefore, you need to invest in things that produce income and increase in value.

Investing In The Stock Market For Beginners

 

Robo-Advisor

If you’ve never invested in the stock market before, I recommend using a passive approach by investing with a robo-advisor.

A robo-advisor is an online automated advisor. They will invest your money for you based on your specific goals using computer algorithms.

They will save you the time and trouble of trying to pick your own individual stocks. I think this is the best way to get started investing in the stock market for beginners.

stock market for beginners

Since robo-advisors are cheaper than what you would pay a human financial advisor, it is a great low-cost option for investing. Some accounts also offers features such as automatic portfolio rebalancing and tax-loss harvesting, which can result in higher net returns for investors.

A great option to use if you’re just getting started is Acorns. I recommend Acorns for beginners because of its round-up feature. The way it works is you link your checking accounts and credit cards to Acorns and they will round every transaction up to the nearest dollar and invest it.

So let’s say you spent $8.17 at lunch. Acorns will round up that transaction to $9 and invest the $0.83. All your spare change starts to add up and before you know it you’re saving and investing. This is perfect for the person who also has trouble saving.

If you don’t think Acrons can work for you, you can also find a list of other robo-advisors HERE to determine what works best for you.

Pick Your Own Stocks

If you are a little more knowledgeable about investing in the stock market, you can choose stocks and stock funds yourself.

When investing in individual companies, I recommend you go with companies you’re familiar with. It’s a strategy that investing legend Warren Buffett lives by.

Stick to what you know. Look at the products you use and consume every day; then research those companies so you can determine if it is a good company to invest in.

I personally use Robinhood to purchase individual stocks. I like this website and app because you can buy and sell stocks for FREE—there are no commissions or fees.

Most other brokerage firms charge at least a $4.95 fee per trade, and some have hidden fees.

Sign up today and you and I can get a free stock like Apple, Ford, or Sprint. With Robinhood you also don’t need a minimum account balance, so you can get started right away.

At first, when I heard about Robinhood I was skeptical and asked myself “How does Robinhood make money if there are no fees?”

Robinhood earns revenue by collecting interest on the cash and securities in your Robinhood account. They also earn money from monthly subscription fees if you upgrade your account to Robinhood Gold.

Gold comes in multiple tiers starting at $6 per month. The Robinhood Gold feature includes a line of credit and larger amounts of instant deposits. However, you do not need to upgrade your account to get the benefits of free trading.

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Downsides To Robinhood

There are however a few downsides to Robinhood. First, when you transfer funds from your bank account it takes 3 business days for the money to be available in your Robinhood account for trading.

So if you want to buy a hot stock immediately, you need to have enough money readily available in your Robinhood account or upgrade to Robinhood Gold. 

To me, it only makes sense to upgrade to Gold if you do not want to keep money in your Robinhood account and you trade more than once a month.

Another downside is you can only invest through taxable accounts. In other words, you cannot invest through your retirement accounts such as a 401(k) or an IRA.

I would only recommend investing through Robinhood if you have already fully funded your retirement accounts.

Finally, Robinhood offers few educational resources or research reports. I think Robinhood is best for people who already know what stocks they want, and just need a free platform to purchase it.

Financially Free

Overall, I think Robinhood is a great way to get your feet wet with investing with no fees. While it is not powerful enough to be your only investment platform, it does work well for your individual stock trading account.

Note that Robinhood only supports stock and ETF trading (and depending on the state you live in, the firm also offers trading in cryptocurrencies—like bitcoin).

Mutual funds and bonds are not supported on the Robinhood platform, so I am only making this recommendation if you want to purchase individual stocks or ETFs.

If you want a full-service online broker, you can go HERE for a list to choose the broker that is best for you.

 

Summary

Investing in the stock market will help you achieve financial freedom more quickly than if you were to just save money. I recommend starting slow and investing with a robo-advisor like Acorns as a way to invest in the stock market for beginners.

Once you increase your financial literacy, you can be a little more hands-on with your investing and decide to choose stocks for yourself. Use Robinhood as a FREE way to purchase individual stocks.

Whatever investment method you choose, pay attention to the fees. Every dollar you save on commissions and fees is a dollar added to your returns. Finally, you can track how your stocks are doing with a FREE Stock Investment Tracker that can be found in my Resource Library.

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