To start off, let me answer a question that many people might be scared to ask because it could seem silly (I promise it’s not): what is investing?
As a finance major, I can tell you it’s not some easy one sentence answer that explains everything. Investing can be extremely complex, but there’s ways to make it personal to you and your comfort level. At a basic definition, investing is distributing a certain amount of money into assets, i.e. stocks. By Nerd Wallet’s definition, “stocks are an investment in a company and that company’s profits.”
Before you throw yourself into the stock market and buy what you’ve heard are “good” stocks, it’s extremely important to do as much research as you can so that you know exactly what you’re doing. What is the stock market? When do I buy/sell? What do I get out of investing? There are countless questions that can be asked, but know that there is an answer to each.
Make sure whatever research you decide to do is from reliable and unbiased sources. Hopefully, I can answer as many of these questions as reliably and unbiased as possible!
Where do I start?
Before making any investment decisions, including the decision to get into investing, you should do your research on the current market, as well as any forecasts if possible. Forecasts are not set in stone and may not happen as predicted, but it’s still important to be aware of any possible outcomes. To quickly define the stock market, it’s a measure of performance based on one of the major indexes, like the S&P 500. Indexes provide a glimpse of how that specific market is doing by showing the increase/decrease in the average. The market can definitely be difficult to understand but know that there are plenty of resources that can explain them in a way that works for you.
How should I invest?
You next want to specify your individual goals for the money you’re investing. Whether it’s to save for later, educational purposes or more, there’s no wrong answer, but it’s important to identify your purpose. You should also think about your time horizon as well as risk tolerance. Time horizon goes back to your goal and how long you want to hold your stocks or how long you want to invest to attain your goal. For risk tolerance, you should only be investing the money and stocks that you’re comfortable with. Gauge how risky of a person you are with money, and make sure you keep in mind how much you’re actually willing to lose. Lastly, make sure you have a solid emergency fund (at least a month’s worth of expenses) and no consumer debt (i.e. credit card debt) before you begin. I know it probably seems much more fun to get into the stock market and make money, but it’s extremely important to cover those areas first. Quick disclaimer: it’s OK if you have student loan debt while investing.
Where do I invest?
Okay, so now that you’ve decided that you’re able (or unable) to start investing, what’s next? Some of the more popular investing platforms are Fidelity, Robinhood, Vanguard and Acorns. You can also look at your current bank and see what they have to offer (Roth and traditional IRAs, mutual funds, etc.). And, putting money towards retirement is also a form of investing. Again, it all depends on how you want to invest and what route seems like the right fit for you. (So continue to do that research!) After you find which outlet you want to use and create an account, you might want to dip your toes in first before you dive right in. Get acclimated to the website and what each key word and button means. It will definitely take some trial and error, but that’s totally normal. It’s better to get started early and learn from your mistakes (or hopefully from your wins), and remember, a dollar today is worth more than a dollar tomorrow.
What are the benefits?
So now we own some stocks. Depending on how long you hold each stock and what its trends are, you’re going to begin accumulating a gain/loss for each day and then see a total showing your gain/loss since you purchased it. Another reminder, you don’t actually gain or lose any money until you sell. So, if you lose money one day, it could just be a minor blip. But I can’t stress this enough, continue to pay attention to market trends and announcements for your specific stock to see if it really is just a minor blip or something that is going to continue. Just be prepared that there will be some economic ups and downs, so investing is best for longer term goals. Owning stocks does not have to be a full-time job but you should check in with them on a regular basis. If your stocks are more for long-term holding, then it doesn’t need to be as frequent as something you’re holding until you see a price you like. Lastly, the least fun part, but equally important, is to be aware of the tax implications involved with investing. There are no taxable events until you sell, but when you do, depending on how long you’ve held onto these stocks, a percentage of your earnings will go to taxes. There are different brackets based on how large your gains are, as well as a higher percentage if you’ve owned it for less than a year versus more than a year.
Hopefully this was enough to get you started, or maybe realize that you might not be as ready as you thought. Just remember not to be afraid to ask for help! As a Smart Money Coach, we are always here to answer any financial questions and help educate you about your money however you want or need. You can email us at finlit@syr.edu, or find us on Orange Success to make an appointment.
Written by Stella Miller ’21, Whitman School of Management, Smart Money Coach
