Stock Market Investing For Beginners: The Complete Guide to Investing in Stocks and Shares

Chapter 1:  Why Investing is Important

YOU MIGHT BE WONDERING to yourself why you would bother risking your money by investing it when you could just park it in a bank account and add to it throughout the years. Yes, this will certainly be a safe way to save up money, but over time, you will actually lose money due to inflation. If you are able to invest and you invest wisely, you can earn money with money – a strange concept, we know, but stick with us here.

Let’s say you just keep socking away money in your savings account, adding in $300 every paycheck. Assuming you have around 30 years to retirement and you get paid twice per month, you are looking at $216,000. Now, that’s nothing to sneeze at, but that is also not going to last you very long in retirement. You need to think about things like the possibility of high medical bills, perhaps having to go live in a nursing home, and many other life factors that come into play when you get older.

However, let’s say you take that $300 per paycheck and you put it in investments that earn you six percent a year and compounds quarterly. At the end of thirty years, you will have made yourself $605, 263.53! Now, that is still not enough to retire safely on, but if you consider that it is just one of your investments, the possibility of retiring as a millionaire becomes ever closer.

So let us explore exactly what compound interest is. It’s so fantastic we just have to tell you all we can about it. Compound interest is what is known in the industry as interest that calculates upon interest. It is what makes investors so successful and continually funds their retirement accounts and also pads their bank accounts while they are still working. Here is a breakdown of how it works in the real world. Let us say that you take that $1000 you get for your birthday and you put it in an account that yields one percent in interest per year. That interest is calculated on that initial $1000. The same thing happens next year – one percent of that $1000 is added. And so on. So you are making money, but at a snail’s pace. Nobody is going to get rich from that.

Instead, let us say that you take that same $1000 and invest it in a fund where you get compound interest. For argument’s sake, we will give you a six percent return. That first year, you will get six percent of that $1000 added to your balance, for a new total of $1060.  So far, not different from that boring old savings account. But it is the second year of investing where things heat up. Now your interest is calculating on that $1060, not the original principal of $1000. So the second year of your investment you recoup $63.60, bringing your total up to $1,123.60. Not bad right? The best part is, with compound interest, your money is working for you even while you sleep.

So how will you be a millionaire by retirement? Compound interest. Shop around and see if you can find an account that will get you at least 8%. Next, see how often your interest compounds – the more often the better.

Here is the tough part, though: you cannot just put a lump sum in the account and then forget about it. Yes, it is one way to earn money, but we are not trying to get you to be an average investor with this book – we are trying to teach you how to be a millionaire by the time you are ready to retire. Because who doesn’t want to be able to retire and not worry about money? Just sit back, sip rum out of a coconut and spend time with the grandkids.

So, like I said, here’s the tough part. You have to consistently add to your investment. You have to consistently put money aside into your investment accounts so that the money can keep building. The more money you add, the more money there is for the interest to calculate on and then the more money you end up with by the time you’re ready to sail off into the sunset.

And here’s the really, really tough part: do not touch that money! Don’t touch it to get that new car you’ve been wanting, don’t touch it to buy your wife that new diamond ring, don’t touch it to buy that new house you really don’t need. This is not an emergency fund to bail you out – this is literally going to be the difference between life and death for you once you quit your job once and for all. Not to mention that this is going to be a way for you to maybe even quit that job a little earlier than you intended.

A Word About Rainy Day Funds

So I know we just rained on your parade (see what we did there) about rainy day funds and about how you’d be losing money to inflation. That is all true, but it is still important to have at least six months worth of salary saved up. Because life happens. You get an unexpected hospital bill, your cat needs to go to the emergency room, or maybe your kid just needs braces. It helps to be prepared for when these things happen so take a little bit of your paycheck and start building a rainy day fund.

The really cool thing about living in this digital age is that there are so many options available to investors who are just willing to put in a little time and effort. This means that even for your rainy day fund, you can find so many automated ways to save that sometimes even offer interest! For example, something that has become very popular among Millennials is the Digit app. It is a handy little app that you hook up to your bank account. It reads your spending habits and will automatically save money for you. It even pays interest and pays you for referrals. It’s worth looking into and will help you save up for that rainy day in no time.

In our next chapter, we will take a look at the stock market and introduce you to some basic fundamentals.

Chapter 2: Some Stock Market Fundamentals

In this chapter, we are going to take you through the basics of the stock market – stocks, bonds, what the stock market is exactly, and why investing in the stock market always means that you are going to take a risk.

What are stocks?

Stocks are one of many tools in the investor’s tool belt that helps them build up wealth. Stocks are, basically speaking, shares of a company that you can buy, sell, and trade. Imagine that the company is made up of millions of bricks – if you own one of the bricks, you own part of the company. More officially, stocks are what is known in the industry as a security – one that signals to other investors that you own part of Company X.

But stock is not just stock – there are two types. One is called common and the other