Stock Investing Basics
The first thing you need to know about stock market investing is that it is easy
to do and that anyone can do it. The second thing to know is that there is no
'perfect' way to invest in the stock market. And there is no 'perfect' stock
or investment product for you to choose.
The best investment choices are the one's that you are comfortable with and
the one's that most closely meet your goals. With that said, you can always
choose stocks better when you're educated, so once you get started, keep
practicing and you should keep getting better over time. As your investments grow, so will your
knowledge of how to invest. Start simple and as you learn and save more money,
expand and diversify the types of investments you have.
In its simplest form, here are the steps required to invest in the stock
market:
Save Money
This sounds pretty simple but is actually the single biggest deterrent to
investing. It is important to know that you don't have to save a lot of
money to begin investing. There are plans were you can start by investing
as little as $50 per
paycheck. However, most brokerages require a $500 or $1,000
initial deposit to open an account. If you can't come up with that much
money right away, don't worry, start your own savings plan and tuck away as much
money as you can in a bank savings account until you can fund your brokerage
account. At $50-$100 per paycheck, you'll be up and running in just a few
months. Having trouble saving money? You may want to visit this site and
read hundreds of ways to
save money.
Create a Strategy
Now it's time to create your investing strategy. Are you going to
invest for growth, for speculation, for a down payment on a house, for
retirement, or for college? Also, are you going to invest a set amount of
money each month or are you going to try to 'time' the market? For a more detailed
explanation of strategies, see our section on
stock
investment strategies.
Open a Stock Account
Now that you've saved money and have an idea of your strategy, it's time to
open your stock account. If you are opening an account for speculation,
you'll want to open a margin account with option trading enabled, if you are
looking for a retirement account, you'll want to explore the tax benefits of
opening an IRA or Roth IRA, and if you are saving for college, you'll want to
explore the 529 and Coverdell IRA accounts. For a more detailed analysis on opening account,
see our section on
how and where to
open a stock account.
Fund Your Stock Account
This part is really easy. Once your account is opened you need to send money
to your account. A direct link between your checking / savings account and
your brokerage is the fastest and most convenient way to fund your account.
By doing this, you can automatically have funds transferred each paycheck or
month, or you can manually move money whenever it is available.
Select and Purchase Stocks or Mutual Funds
This is probably the hardest part of investing because there are tens of
thousands of different investments to choose from. Do you choose stocks,
bonds or mutual funds? And then, which specific stocks or funds do you
buy? The best way to choose stocks is to learn how to do your own
research, which you can find in our section on
stock
investment research. We also have a section on
analyzing mutual
funds.
Save More Money
Until you retire, you should never stop saving money. Continue to save
money with the goal of saving more and more each year. As you watch your
prior investments grow, you should become more and more motivated to save even
more money. The fastest way to do this is to increase your income and
lower your expenses at the same time.
Invest in More Stocks and Funds
With the new money, invest in different stocks and funds to build a
diversified portfolio. See our section on
building your
stock portfolio.
Keep Educating Yourself
Keep reading up on the stock market and finding new investments that are
right for you. The more you read, learn and watch, the easier it will be
for you to choose investments. See our section on
recommended reading for
stock investing.
Occasionally Rebalance Your Portfolio
Every year or so, take a look at your total portfolio and make sure that it
is diversified, invested in quality investments, and that it is aimed toward
your goals. See our section on
building your
stock portfolio.
Another good way to learn the stock investing basics is by
asking questions.
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