What to know before investing in the stock market.

Investing your hard-earned money into the stock market is an investment toward your future. While it may take some experience to know all the ins and outs of the market, investing in stocks may be more profitable than you think. We teamed up with local financial advisors Savannah Gerloff, of Edward Jones, Andy Beshuk, of Providence Financial, and Donna Bax of Lincoln Financial Advisors and Hawthorn Bank1 to discuss what you need to know before getting started.

How do you know when you are ready to get in?

Donna Bax: First, make sure these things are taken care of: monthly expenses and debts, employer retirement contributions like a 401(k), and emergency savings.

Savannah Gerloff: Investing in the stock market isn’t a standalone activity; it is part of your bigger financial picture. If you have extra money every month and a long-term goal you’d like to reach (education savings, retirement, down payment on a house), you may want to start growing your wealth by investing wisely in the stock market.

Andy Beshuk: Don’t overthink it, but at least start small and stick with it. If you’re nervous about investing or need time to learn more, that’s fine. But learn by doing and learn along the way. It’s too easy to put off saving for your future, and there is tremendous value in starting early.

What are the first steps to getting into the stock market?

DB: The initial step is to understand how the stock market works and what stocks, mutual funds, and ETFs (exchange traded funds) are. This can be achieved through finding a financial advisor you’re comfortable with who will help you understand the basics.

SG: Determine what type of investor you are. Are you a do-it-yourselfer or would you rather work with a financial advisor to help you along the way?

AB: Determine the purpose of the investment. If it’s for long-term retirement, you need to first figure out your account type — like a traditional vs. Roth IRA). Once the goal is known, then you can decide how to manage the money inside the correct account type.

When you are ready to get in, what paperwork or information should you have ready?

DB: First, you have to understand that the market will fluctuate, but you shouldn’t let that deter you.

SG: When you have your day-to-day expenses and an emergency fund covered, and you are ready to invest toward a longer-term goal, you’ll be undoubtedly considering stocks as part of your investment portfolio. Calculate your assets, liabilities, and net worth. It’s also beneficial to have your monthly budget filled out along with a risk tolerance questionnaire to see how comfortable you are with the risk side of investing, especially since no single investment performs well under every market condition.

AB: Opening an account is simple. You just need basic information like social security numbers, dates of birth, address, and, very importantly, beneficiary information for each account.

How much money do you need to get started?

DB: You can get started with however much money you feel comfortable with. It differs between mutual funds, stocks, and ETFs, but you can invest for a dollar or for thousands of dollars. Many of our clients only invest $50 a month.

SG: Many mutual fund minimums are $250 to get started. However, it doesn’t matter how much you invest, but that you are investing for the long term. It’s better to start as early as possible, even if it’s $25 or $50 at set intervals. A 20-year-old who contributes $50 a month toward retirement has the advantage of time on their side and is likely in a better position than someone who waits until age 45 to contribute that $50 a month.

AB: Most investment accounts have minimum requirements, but there is an account of virtually any size for any investor.

How do you identify a good company to invest in?

DB: It’s better to diversify your investments. However, if a client is only interested in one company, I like to focus on larger companies that pay dividends with strong financial earnings.

SG: With more than 65,000 stocks available to trade globally, it can be difficult to choose the right ones for your portfolio. We first filter stocks based on geography, longevity, size, and quality. From that group, we further narrow the field by identifying companies we believe have sustainable competitive advantages, experienced management teams, and strong financial positions. Last, we use analysis to determine a fair price for the stock. This process allows us to recommend what we believe are quality companies with attractive stock prices.

AB: If you’re investing in the stock of an individual company, then it will be very important to research and study as much as you can. However, if you choose to utilize mutual funds or ETFs, you instantly get diversification and are not so reliant on the results of just one company.

How do I know when to buy and sell?

DB: None of us has a crystal ball, but by monitoring the market trends, you can get an idea of what you feel is a fair price for buying and selling. You could be wrong, you could be right. Unfortunately, no one knows what the future will bring.

SG: There are a few triggers that suggest when it might be a good time to buy or sell, such as the need to rebalance your portfolio. Building a portfolio with investments that can handle varying market conditions has a bigger impact on your investment success than efforts to time the market by buying or selling stocks when you think they are nearing low or high points. Building a habit of consistently investing is also a better strategy than trying to time the market.

AB: When you are younger, you are generally buying and buying for a long time, accumulating your nest egg. As you age, you may need to adjust your strategy to begin preserving your assets for later use. In retirement, most people need to begin selling their investments to produce income since they no longer have wages from employment. This is a critical time where it’s very important to know which assets to keep, which to sell, and when. These decisions will impact how much in taxes you pay and how long your investment may last.

What platform should you use?

DB: I believe in having a personal relationship with someone who can educate and guide you in your financial doings. There are other platforms online, but I feel it’s important to have that face-to-face aspect that you can’t receive online.

SG: For those who want to work with a financial advisor, the financial advisor will handle that level of detail and keep you informed of the recommendations as you work together based on the goals you have discussed together.

AB: Platforms today are really pretty similar, whether you use a brokerage provider like Fidelity or Schwab or invest directly with a fund company.

Why use a broker versus doing it on your own?

DB: A financial professional usually has years of experience with the market and will be able to help prevent you from making costly financial mistakes. I once read an article that stated it’s brilliant to have these three things: an accountant, an attorney, and a financial advisor. If you have these three things, you can get through almost any financial challenge.

SG: We want to know the why behind your investments. Maybe you are investing for retirement, to pay for your grandchild’s college, or to pass on a legacy to your family. Once we know why, we use our established process to help build, protect, and transfer your wealth with investments that specifically address your goals. As your goals change, we’ll continue to follow a process to understand where you are, where you want to be, how to get there, and how to stay on track.

AB: You should ask your financial professional whether they are registered as a broker or a fiduciary, as it could determine the type of investment they are able to offer you.

What should your relationship with your financial advisor look like?

DB: Respect. This must go both ways. A client should never feel uncomfortable asking a question because when it comes to your money, there are no silly questions.

“When it comes to your money, there are no silly questions.”

Donna Bax

SG: You’ll need to feel comfortable discussing personal details about your life and finances, so the relationship is key to your success. Your financial advisor should be someone you trust, someone who listens well, explains things well, and someone who makes recommendations in your best interest, not theirs or their company’s.

AB: Your relationship should be based on transparency and great communication. Your advisor should be able to educate you on your spectrum of choices and have the competency to put you in the right position to meet your goals.

How should I talk to my kids about the stock market?

DB: Use companies they recognize as a fun example for them to follow along with, or show them your personal investments and use those as a method of education. Knowing the basics is just the beginning, but if you feel ready to invest, there is no better time than the present. The sooner you begin, the more potential you have to profit.

SG: It’s important to discuss with your kids the importance of investing at a young age. The earlier they get started, the better off they will be in reaching their future goals.

AB: Using a stock-picking game can be a lot of fun. You could use real money or just track things, but you could have a fun, friendly competition and make a game of it.

“Most individual investors make their money over time, not overnight.”

Savannah Gerloff
Final Thoughts

DB: Save, save, save! And always remember, even though the stock market may seem daunting, it truly is the best way to create wealth.

SG: Most individual investors make their money over time, not overnight. The earlier you start investing, the better.

AB: The power of compound interest is incredible, but you cannot shortchange the time needed for this payoff.

Stock Market Terms to Know

Assets: Property that is owned by a person or company and that is regarded as having value and is available to meet debts, commitments, or legacies.

Broker: A person who buys and sells goods or assets for others.

ETFs: Exchange traded funds are a type of investment fund that is traded on a stock exchange.

Fiduciary: A person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.

Liability: An obligation consisting of an amount owed to another individual.

Mutual Funds: An investment program funded by shareholders that trades in diversified holdings and is professionally managed.

Net Worth: The value the assets a person or corporation owns minus the liabilities they owe.

Stocks: A share which entitles the holder to a fixed dividend whose payment takes priority over that of common-stock dividends.

1 “Donna Bax is a registered representative of Lincoln Financial Advisors Corp, investment and advisory services are offered through Lincoln Financial Advisors, a broker-dealer and registered investment advisor (Member SIPC). Hawthorn Bank is not an affiliate of Lincoln Financial Advisors Corp.”