Stock market investing can provide investors with better returns over the years than a bank account or US Treasury Bonds. Stock market investing is also riskier than simply putting your money in an FDIC insured bank account or Treasuries that are backed by the full faith and credit of the US government. How do you profit from stock market investing and minimize the risk? Here is an overview of stock market investing. As an example let us assume than you just got a big bonus at work or your dear Aunt Ethel left your $10,000 in her will. Let us look at how to invest $10,000 as an opener to stock market investing.
Stock Market Investing 101: Before You Invest
First of all you will want to invest in the stock market and not gamble your money there. Start by realizing that a good stock investment may pay much better than a bank deposit over the years but will typically not keep up with the rate of interest that you are paying on credit cards. So, before investing in stocks pay off your credit card debt, look into buying a house or condo as mortgage interest is still tax deductible, and put aside enough in the bank for six months of expenses. That having been said there is nothing wrong with picking a couple of low priced stocks and investing a couple of hundred dollars in order to become accustomed to picking stocks, learning about what constitutes a margin of safety, how to do fundamental analysis and what intrinsic stock value is.
Stock Market Investing 102: Time Horizon, Risk Tolerance
Are you investing for retirement, to put your new child through college when he comes of age or for a vacation home as soon as you can afford it? The longer you have the more risk you can afford to take on. High risk growth stocks can make you a lot of money and they can crash. These are stocks to consider as a fraction of your portfolio when you are young. On the other hand dividend stocks from well established companies are a good idea as you approach retirement or whatever your goal may be. Also, you can always live without your home on the lake but you really do not want to miss out on your retirement nest egg. Think critically about what you want in life and engage in stock market investing accordingly.
Stock Market Investing 103: Diversification and Portfolios
It is a good idea to invest in more than one stock. If you have a couple of biotech startups that you like you may want to balance the risk of these investments with a stock that has a history of slow but steady growth as well as regular dividend payments. Whatever you buy for the short or long term you need to pay attention. Do not buy so many stocks that you cannot keep track.
Stock Market Investing 104: Nuts and Bolts
You can buy stocks for your retirement plan such as a 401K. You can buy directly through a broker. You can buy common stocks or preferred stocks. Preferred are usually more expensive and often provide a dividend that is paid before owners of common stock receive any. You can buy stocks in individual companies or shares of exchange traded funds that represent collections of stocks, gold bullion, etc. And, stock market investing is a business. Learn the ropes, examine your results, and get sound advice if you need it. Avoid tips unless you thoroughly check them out. And do not be afraid to simply invest in things that you know about and are comfortable with.