After hearing about everything that happened with the recent Reddit/Gamestop hysteria, you are probably interested in learning more about investing and the stock market but have absolutely no idea where to begin.

To help make things a little easier, here are the basics of investing spelled out for beginners. 

To start off, what exactly is investing?

According to Sean Davis, Associate Professor of Accounting and Finance at the University of North Florida, while the overall concept of financial investment seems extremely intimidating to beginners, it can actually be summed up quite simply.

Investing, in the words of Professor Davis, is “taking whatever money you can, setting it aside, and investing it for the long term.”

The goal is, by setting this money aside and investing it into the market, it will eventually grow over time resulting in a large nest egg or sum of money taken out at the end of the investment process. 

Therefore, it is crucial to start investing as soon as possible. 

“It’s never too early to start,” Professor Davis said, “but sometimes it can be too late because people don’t understand the system.”

That being said, where is the best place to start?

According to Professor Davis, people, especially college students, want to start investing using a discount brokerage firm.

A discount brokerage firm can best be defined as “a business that allows clients to buy and sell securities but does not provide advice, research, planning or other investment services,” according to Bankrate.com. Some examples of popular brokerage firms include Charles Schwab, TD Ameritrade, E*TRADE, Robinhood, and Fidelity.  

These discount brokerage firms offer users the ability to select their own transactions and many provide additional services, including “set-it-and-forget-it” Robo-advisory options.

According to Investopedia (which is a great resource for new investors), “although there are a number of discount brokers with no (or very low) minimum deposit restrictions, you may be faced with other restrictions, and certain fees are charged to accounts that don’t have a minimum deposit. This is something an investor should take into account if they want to invest in stocks.”

In addition to using discount brokerage firms, Professor Davis also recommends that students “start now and open a retirement account” like a Roth IRA. A Roth IRA has many advantages, including the ability to obtain tax-free growth and tax-free withdrawals in retirement. It also offers the ability to make withdrawals in the case of emergencies. 

Now that you understand the basics of where to invest, it’s important to know what kind of companies to invest in.

According to Professor Davis, the answer depends, but the classic economist’s answer is “well-run companies with good cash flow and with a sustainable path for growth.”

He also strongly cautioned against investing in sensationalized “story stocks” like those involved in the recent Gamestop/Reddit incident. 

“When in doubt, if you don’t understand an investment, stay away,” said Professor Davis. “Don’t invest your money, or a majority of it, into something you don’t understand.”

Finally, once you have figured out where to invest, the last thing you need to do is figure out what type of investor you will be. Are you constantly buying and selling? Or do you have a more passive approach?

While there are pros and cons with both investing styles, Professor Davis strongly recommends a more passive approach, especially for beginners.

“Most people who trade a lot, lose a lot. There are costs to trading a lot,” Davis said. “Active money management, including professional active money managers, will typically underperform a passive investing approach.”

One final tip for investors is to do your research and make use of a variety of resources. A great resource recommended by Professor Davis is a compound interest calculator. This provides a great visual representation of how your money can increase with the power of compound interest. Simply input the amount of your initial investment, how much you plan on investing monthly, and put the growth at 8 percent, and you will be provided with an interactive graph showing the expected growth.

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