There are several items one will want to look into prior to investing in stocks including understanding whether to choose an individual stock or fund, select an account with low fees and useful tools, identify your budget, conduct research before purchasing a stock or fund, and figure out whether one intends on investing for the short or long term. Equity index funds allow the investor to purchase a small piece of multiple companies with just one transaction such as a Standard and Poor’s 500 fund. Individual stock purchases focus on a single company. If one focuses on single company, it is best to diversify the portfolio so if one sector suffers one will not lose their entire investment.
Choosing an account is as simple as signing up with an online broker. Stocks, bonds, Roth IRAs, and ETFs can be bought via online with brokers such as TD Ameritrade and OptionsHouse. These brokers are advantageous as well to the new investor since customer support, educational resources, and stock trading platforms are available for use. The funds needed to open an account vary, yet one will want to determine the type of stocks or funds to invest in since the price for each varies. Smaller budgets favor investing in an ETF while those with a bit more supplemental income to invest may want to go with a mutual or an index fund. Either way, researching an investment is important, namely any recent news, annual reports, past performance, or analyst ratings on the companies of interest. Regardless of the rout one turns, stick to a game plan and be prepared for the daily price fluctuation caused by news and general market turmoil. If a single stock is causing too much stress, try an equity index or ETF so the price changes are not so drastic.
Before moving into your initial investment, be certain that one has six months of savings. Once this has been accomplished, try one of the many trading apps available such as Robinhood, Stash, or Acorns. Robinhood permits the user to purchase stock free of charge, and one can open an account for just a few hundred dollars. Stash and Acorns permits the investor to own stock using their spare change. For instance, five dollars permits one to own a percentage of a mix of stocks and bonds in a diversified portfolio. Stock research is offered free of charge at Betterment and Wealthfront. Computer models are utilized to figure out the portfolio mix that would be the best option based upon the investor’s age, income, goals, and tax situation. Frankly, it is tough since there over 2,300 stocks to choose from in the New York Stock Exchange alone.
There are a couple of manners in which one can earn a profit when investing in a stock including via a dividend or by selling your shares at a greater price than what they were initially purchased at. Dividends are typically dispersed quarterly and are a good way to generate a consistent stream of income. It is beneficial to invest in a company that one understands the business they are involved in. The knowledge one has in the type of business is beneficial when deciphering how well the company is performing. Look for companies to invest in that have a competitive advantage over their competition such as Amazon which has turned shipping and delivery into an art form. Once a company is decided upon to invest in, it is a good idea to start out buying a small position and use any remaining funds on other stocks so as to diversify your holdings.