Why and How Should You Invest in the Stock Market?

Investing might sound like a big, complicated word, especially when you hear it in the same breath as “stock market,” “trading,” or “finance.” But don’t worry—by the end of this post, you’ll understand what investing is, why it’s important, and how you can start investing in the stock market even if you’ve never touched a financial app before. Let’s break it down step by step.

What is Investing?

Investing is the process of putting your money into something with the goal of making it grow over time. It’s a way to make your money work for you instead of letting it sit idle in your bank account. Think of it like planting seeds: you plant them now and, with the right care and time, they grow into fruitful trees. Investments are the seeds that grow your wealth.

When you invest, you buy assets—these can be things like stocks, bonds, real estate, or even a small business. The idea is that these assets increase in value, giving you a return on the money you put in. This return can help you reach financial goals like buying a house, saving for retirement, or even just building a safety net for future needs.

Why Invest?

One simple reason: inflation. Inflation is the gradual increase in prices over time. Imagine you have $100 today, which buys you groceries for a week. In ten years, because of inflation, that same $100 might only buy you a couple of days’ worth of groceries. The value of money decreases over time, and that’s what inflation does.

If you just keep your money in a savings account, it might not grow enough to keep up with inflation, meaning you lose buying power over time. Investing helps you stay ahead of inflation. It can make your money grow faster than it loses value, allowing you to maintain or even improve your financial position over the years.

What is the Stock Market?

The stock market is like a big marketplace where people buy and sell parts of companies, known as “stocks” or “shares.” When you buy a share, you own a tiny piece of that company. If the company does well, the value of your share goes up, and if it doesn’t, the value goes down.

Think of the stock market like an auction where people bid on pieces of different companies. It’s open to anyone—and that includes you. The stock market provides an opportunity for ordinary people to invest in businesses and grow their money as those businesses succeed.

Why Invest in the Stock Market?

Investing in the stock market has historically been one of the best ways to grow your wealth over time. While there are risks (stocks can go up or down), the long-term trend of the market has been growth. That means if you invest wisely and stay patient, there’s a good chance you’ll end up with more money than you started with.

Another reason to invest in the stock market is the power of compound interest. When you invest and earn returns, those returns can also be reinvested to earn even more returns. This snowball effect can lead to significant growth over time, making your money multiply.

How to Invest in the Stock Market

Investing today is easier than ever before, thanks to technology. There are several apps and websites that allow you to start investing with just a few clicks. Here are some popular ways to get started:

1. Apps like Trade Republic, Robinhood, Webull, or eToro: These apps make it easy to buy and sell stocks. They’re very beginner-friendly, often come with no commissions, and let you start with as little as a few dollars.
2. Brokerage Accounts: Companies like Vanguard, Charles Schwab, and Fidelity offer online platforms where you can buy stocks, ETFs, and more. These brokerages provide a lot of educational resources too.
3. Official Portals: Many countries have national stock exchanges that provide direct links for investing. These might require a bit more paperwork but can be a solid option.

What to Do as Beginners?

If you’re just starting out, it’s important to keep a few things in mind:

• Start Small: You don’t need a lot of money to start. Begin with what you can afford and get a feel for how the market works. When I started a couple of years ago, I began with only 20 euros.
• Do Your Research: Understand the companies you’re investing in. Don’t just follow the hype—learn why a company is doing well or not. You also need to be passionate about the industry you want to invest in and have some basic knowledge so that you understand the trends better or can predict the future more accurately. But don’t worry too much about it—after following the markets for a few months, these intuitions grow naturally.
• Think Long-Term: The stock market can be volatile. If you invest with a short-term mindset, you might panic and sell when things go down. Investing is about the long game.

Day Trading vs. Long-Term Investing

There are two main approaches to the stock market: day trading and long-term investing.

• Day Trading: This is buying and selling stocks within a short period, sometimes within the same day. It’s risky, requires a lot of experience, and isn’t recommended for beginners. Some people make millions of dollars in a single day just by trading smartly, but it requires knowledge, effort, and a lot of time.
• Long-Term Investing: This involves buying stocks and holding onto them for years, even decades. This approach allows your investments to grow over time, benefiting from the overall growth of the market and compound interest. For most people, long-term investing is the safer and more rewarding approach.

What is an ETF?

An ETF, or Exchange-Traded Fund, is like a basket of different stocks. Instead of buying shares in one company, you buy a share in a collection of companies. This helps spread out your risk—if one company doesn’t do well, the others might still grow. It’s like diversifying your bets so that you don’t put all your eggs in one basket.

ETFs are great for beginners because they offer instant diversification and can track specific parts of the market, like technology or healthcare, or even an entire market index.

Popular ETF Indexes to Follow and Invest In

Some popular ETFs that are great for beginners include:

• S&P 500 ETFs: These track the performance of the 500 largest companies in the U.S. Examples include Vanguard S&P 500 ETF (VOO) or SPDR S&P 500 ETF Trust (SPY).
• NASDAQ-100 ETFs: These track the biggest tech companies, like Apple, Google, and Amazon. A popular option is the Invesco QQQ ETF (QQQ).
• Total Market ETFs: These track the entire stock market. Examples are Vanguard Total Stock Market ETF (VTI).

What About Crypto?

Cryptocurrency is another type of investment you might hear about. Unlike stocks, cryptocurrencies like Bitcoin and Ethereum are digital currencies that aren’t tied to any country or government. They can be highly volatile—their value can swing wildly in short periods. While some people have made a lot of money in crypto, it’s generally considered a riskier investment compared to traditional stocks and ETFs.

If you’re curious about crypto, consider starting with a small amount that you can afford to lose in a site like crypto.com. It can be a high-risk, high-reward investment, but it’s not a must-have in a beginner’s portfolio.

Final Thoughts

Investing can be a powerful tool to build wealth, but it requires a bit of patience and a willingness to learn. Start small, diversify your investments, and think long-term. The stock market may seem intimidating, but with a basic understanding and the right tools, anyone can begin their investment journey.

Take the first step today. Open an investment account, set aside a little money, and watch how your understanding (and wealth) grows over time. I recommend Trade Republic for some benefits that I will discuss in another post. For now, I’ll wrap up here. If you have any questions or confusions, feel free to ask me in the comments. Good luck!