How to Invest in Stocks for the First Time

Where to begin when thinking about investing in stocks for the first time?

There’s so much information out there, it can be overwhelming. We’ve kept it simple and listed out the key things for you to think about.

Consider the value of your time

The choice is simple – invest in stocks yourself, or enlist the help of the experts.

The DIY approach can be fascinating, fun and rewarding. It can also be confusing and time intensive. It’s easy to fall into the trap of thinking it’s cheaper to begin investing in stocks yourself, since you’ll be saving on fees charged by traditional investment advisors and robo-advisors. But more often than not, it’s a false economy.

Remember your time is valuable, and spending hours every week researching individual securities, investing in stocks and managing a diversified investment portfolio is a false economy for most people.

Traditional or progressive investing?

If you decide you’d like help from professionals, you have two options:

Traditional investment advisors – a professional who manages your money for you, providing bespoke investment advice. They tend to charge high fees relative to automated investment offerings that use technology to lower the costs and pass these savings onto the customer.
Robo-advisors – an online platform that understands your financial needs and automates the management of your money. These tend to be cheaper than traditional investment advisors and require much less of your time and focus.

Always consider fees while investing in stocks

Investment advisors and robo-advisors charge fees to look after your money and hopefully, grow it over time by investing in stocks.

If you’re not careful, these fees can quickly erode your returns and even leave you with less than you started with after inflation. Some wealth management providers minimise this uncomfortable truth, because they know it’s not good for attracting and retaining new customers.

So, when thinking about investing in stocks, it pays to look for an investment solution that charges low fees. It’s also worth seeking out providers that are upfront and transparent about the fees they charge, why they charge them, and what you get in return.

It’s also worth bearing in mind that in order to buy and sell stocks, you will need to go through a brokerage that charges fees for transactions. Individual investors have less pricing power than advisors and robo-advisors that aggregate interest from large groups of investors, which means you could end up paying more to do it yourself.

Here at Sarwa we keep our fees as low as possible, especially compared to traditional wealth advisors that can charge over 3-5%. And we’re transparent with our fee structure, so you know exactly what you’re paying.

Compare active investing vs passive investing

We recently blogged about the difference between active and passive investing, and it’s an important point to consider when thinking about investing in stocks.

Active managers pick individual stocks and seek to beat the market, expressed via a benchmark – typically a stock market index like the S&P 500. Because it’s very hard to beat the market – and very few managers do it consistently – it makes sense to invest with passive managers, who seek to track the market and charge much lower fees for the privilege.

Investors are fed up with paying exorbitant fees for the mediocre returns that active managers tend to provide. The high costs of active management simply can’t compete with the low costs of passively investing in stocks.

Get to grips with account minimums

Most investment offerings have account minimums, which means you have to keep a certain amount of wealth in your account at all times. There’s nothing wrong with account minimums per se – in fact they tend to be a good thing, because they ensure that you get a good level of service. But if they are too large, they can inhibit your ability to respond to changes in your personal finances.

For example, if you were faced with a situation where you needed to raise cash at short notice but in order to do so you fell below your account minimum, you would be forced to close your account. This can be a real headache for people who need flexibility when managing their money.

Look for the personal touch

There’s a lot to consider when starting out in investing in stocks. It’s always nice to be able to pick up the phone and speak to a human being for advice.

Traditional investment advisors are great for this, but they tend to be more expensive than online platforms. Sarwa offers the best of both worlds – a low-cost online investment platform combined with advice and support from a team of investment professionals.

If you’d like to get started, please get in touch. We’d love to help.

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