Do you start thinking about retirement? Wondering how you can afford to spend your golden years in comfort? Investing in the stock market is one way to increase your wealth and security, but it is not without some serious risks. Follow these tips to get a solid start on your financial future.
[ Edit ] Step
[ Edit ] Learning About Stocks
- Understand the stock market. To be able to invest properly, you must understand what the stock market is and how it works. Here is a basic overview of terms and processes:
- Shares. Also called "shares" or "equity", a share is a certificate that gives the holder the ownership of a company. To raise money, a company releases shares that the public can buy. Each share represents a small share of ownership in that company.
- shareholders. This is a person who owns shares in a company. A shareholder can have as few as one share and as many as millions. Shareholders receive votes in the company and earn a percentage of the profit.
- Stock market. This is where companies' shares are bought and sold. It can be a physical location or a virtual market. The three primary stock markets in the United States are the New York Stock Exchange (NYSE), the US Stock Exchange (AMEX) and the National Association of Securities Dealers Automatic Quotation System (NASDAQ). All are available through stockbrokers, both by phone and online.
- Familiarize yourself with different kinds of layers. There are two main types of shares: common and preferred.
- Common stock is the most common form of stock for newcomers. It is a share in a company. Common stock can provide some of the highest return on investment but has the greatest risk.
- Preferred stock gives ownership as usual, but does not give voting rights. The dividends paid out with the preferred share are set instead of the variable as ordinary stock. Preferred stock is a safer source of dividend income than regular stock.
- Shares can also be divided into different classes if the company chooses. Usually, one company will make one stock class have more voting rights than the other to ensure that certain groups retain control of the company.
- Learn how stocks increase and decrease in value. Inventory works according to the Supply and Demand Act. As demand for a share increases and more people are interested in buying than selling, the price of the share rises. This is because there is a smaller range of shares and each share becomes more valuable. Shares generally increase in demand as the company succeeds and their demand decreases if the company's earnings suffer.
- Demand is often based on expectations of future earnings. When investors feel that the company will perform better in the near future, demand will increase.
- It is impossible to predict with any certainty how the overall stock market will behave. That is why there is so much risk associated with this type of investment.
- Find out the dividend. Dividend is a benefit paid to the shareholders in the opinion of the Board of Directors.
- Stable companies often pay dividends to keep investors happy when their stock price does not rise much.
- Dividends are a great way to earn "passive" (automatic) income for a long time.
- Understand why you want to invest. Ask yourself why you want to invest and what you expect to gain from it. The stock market can be very volatile and a bad day can see you lose a significant portion of your investment.
- Good investors invest in the long term. If you are looking to get money right away, the stock market may not be a good place to spend your money.
- Don't invest if you try to get out of debt. Make sure that high-interest liabilities are taken care of before investing in the stock market.
- Successful equity investments require special time from the investor. Ask yourself if you have time to research companies for at least a few hours a week. Such research is extremely important. There are many research services available to do some of the leg work for you. Look online for sites like Scottrade, ShareBuilder, Motley Fool, E-commerce, TDAmeritrade, TradeKing, Morningstar and TheStreet, to name just a few. It is very dangerous to choose shares without first examining them carefully.
[ Edit ] Choosing shares to invest in
- Determine your strengths. Since you need to do some research as to which company you should invest in, focus first on companies you have some knowledge of. This will make things a little more interesting and engaging as you get started.
- Check local businesses, because you may have more opportunity to engage them and get a feel for how their business is affecting your area.
- Think about the total value of a share. You need to do some research and math to determine the value of a business. You will soon see that a one-dollar share is not necessarily cheaper than a $ 40. A stock with a fair value higher than the quoted price is one that it is probably worth buying.
- Since buying a stock involves buying the ownership of a company, it determines whether it would be financially reasonable to buy the whole company (assuming you had money).
- Find out how long it would take to pay off your investment from profits if you bought the whole company. Use the results to determine if it's worth investing in stocks.
- Keep in mind that profits can change wildly as markets change. Technologies can become outdated or regulations can change, making the company's products less valuable or even useless.
- To determine the value of a business, you need to look at several variables. These include Future Performance Cash Flow and Revenue among many others. 
- Future Performance. A company's value is largely based on forecasts for future results. Past performance is important only as an indication of how the company will perform in the future.
- Cash Flow. In general, a company that has a lot of assets and high operating costs has less cash flow than a similar business with smaller assets and lower operating costs. Cash flow is cash that can be used to pay off debt.
- Revenue. Revenue is one of the most important factors when evaluating a business. If two companies have the same cash flow but one has higher revenues, that company will probably be worth more.
- Create a diverse portfolio. While it's important to invest in what you know, you don't want all your eggs to be in one basket. If something happens to the industry you are investing in, you could lose a lot of your investment in short order. Invest largely to minimize the risk of sudden loss.
- Invest in a wide range of economic sectors. If you are heavily focused on technology, you may want to consider investing in consumer goods, real estate or a number of other industries.
- Most investment experts recommend not placing all your investable funds on the stock market. Also consider bonds, currencies and commodities.
- Try to create a portfolio of about 20 different unrelated shares. This should be a manageable number to keep track of while still providing a wide range of earning opportunities. 
- Know when to buy. Buying at the right time is crucial for successful investments to be made.
- Don't buy everything at once. If the market declines immediately after you buy, you can lose most of your investment. Instead, distribute your initial investment over several months to minimize the risk each time you buy.
- See a stock card when considering stock purchases. Both Google and Yahoo provide comprehensive online charts and there are many other similar services to choose from.
- Check if the stock trend is rising. This means that the price has risen steadily. Look for stocks that are increasing but not necessarily fast. The shares will only go so high, so if a price climbs quickly, there is a good chance that it will level out or fall soon.
- Check the volume of the trade. If a stock finds ever more buyers, it is a good indicator of the stock's health. A rising price with a decreasing volume may mean that the price will soon fall due to a lack of interest.
- Find the moving average for the stock. The moving average is an average price over time. Ideally, this average would increase and the quoted price would be above this average.
- Avoid volatile layers. If the price jumps too much and there are many nails in the chart, the stock is probably too unstable to safely invest in.
- Contact a broker when you are ready. To buy shares, you must go through a licensed stockbroker. There are many options to choose from, but they boil down to four main choices.  Decide which one best suits your needs.
- Online / Discount broker. Online brokers are mainly order takers. They provide no personal help and make decisions about what to buy and sell to you. Fees are usually per transaction, and they usually require very little initial investment to open an account. The research will be up to you.
- Discount broker with help. This is basically the same as the category above, except that the broker can provide a little more basic research, such as newsletters and internal research reports. The fee is often higher than online only because of these extra services.
- Full-Service Broker. These are the traditional stockbrokers who will meet with you and discuss your full financial situation, as well as risk analysis. They will help develop financial plans and provide advice in other financial areas such as taxes. Full-service brokers will be quite expensive than a discount broker, but many offer significant benefits.
- Money Manager. A money manager takes full control of your personal finances. Their customers are usually the ones with a significant amount of income, and the regular minimum account is $ 100,000 or more.
[ Edit ] After You Invest
- Buy and hold good shares. Selling stocks as soon as they rise in price is a sure way to move somewhere fast. Practice self-control and hold on to solid stocks unless you are desperate to raise money. Good stocks can result in large payouts over the long term.
- If you buy and sell repeatedly, much of your profit will go to commissions for brokers and your profits will be hit.
- "Day trading" is stacked against newcomers, because they are trading against experienced professionals and computer programs designed to buy and sell at optimal moments.
- Instead, keep stock of companies that are solid and growing. If your shares pay a dividend, you reinvest them to increase your earning potential.
- Add your portfolio as you go. Once your portfolio is established, you visit it so often and make appropriate changes.
- Move money from sectors that are not performing well and invest more in areas that see higher returns.
- Add more investment with additional funds as they become available to continue diversifying.
- Know when to sell. Ideally, you want to sell a stock when it reaches the value you set when researching the company and when the value isn't expected to increase much more.
- If your stock has not met its target value and does not look like it will sell it, especially if the price falls below the moving average. This is usually seen as the "last chance" to get rid of a stock before it drops too low. 
[ Edit ] What to Expect Using a Professional Broker
- Expect to pay a fee for every transaction you make. Brokers make their money on you every time you buy or sell a stock. You must know what fee is coming in, but you must also make it clear to your broker your acceptable level of trading. Some brokers will try to suck in beginners with high commission shares and several deals to make more money.
- If you have a large account and are planning on frequent or aggressive trading, you may be looking for a commission account where the broker receives a percentage of your portfolio instead of a fee per trade.
- If your broker frequently makes changes and trades, known as "churning," they may try to raise their commission. Any trade that eats in your principal should be red flagged. 
- Expect your broker to ask your acceptable risk level. Your risk tolerance determines how bold of an investment the broker will take. Stocks are somehow gambling, and there are both safe games and long shots. Your broker wants guidance on where to manage your portfolio, based on your financial needs:
- Younger investors should strive for high risk investments. Lager is a long game, and all busts now will more than likely be corrected with later booms. You have time to take the risk.
- Middle-aged investors should strike a balance between safe and risky stocks.
- Low risk accounts will make safe bets with lower winnings. These are good for older investments that couldn't cope with a sudden loss of money near retirement or for those who just want slow, reliable growth.
- Expects most professional investors to choose marginal accounts, not cash accounts. There are two basic options for investment accounts – cash and cash / margin accounts. Cash accounts must have a deposit available to trade – the money must be on hand. Marginal accounts allow you to borrow money from the broker to buy shares. This loan is based on the expected earnings from the share.
- Cash accounts are safer, but produce much less profit. You know exactly where all your money is and whose money they are.
- Marginal bills technically put you in debt, even though interest rates are much lower than in a bank. As they make more money available to you, you will make more money. Some higher risk trades are only available in marginal accounts. 
- Expect the broker to determine your tax status based on your financial needs. Are you in the stock game to make a profit right now or for a pension? Depending on how you classify your portfolio, your broker may possibly lower you rates.
- Standard brokerage accounts can be exchanged, taken out and edited on the fly. It can be short or long term investments or some of both. They are completely taxed.
- Pension accounts, as an IRA, pay much lower taxes. But you can only withdraw the money from them at a certain age or risk losing a lot of your profits.
- A professional trader would usually have both types of accounts, but this requires a lot of cash in advance. 
- Expect the meeting to end with a request for your investment money. Most brokers give you up to two weeks to give them money. You can cut a check, which takes about a week to complete. If you are in a hurry, expect to receive a routing number and instructions to transfer your money over.
- Professional investors always add specific investment accounts. They do not link their investment money to a savings or checking account. 
- Expects a professional broker to often use algorithm-based trading. The stock market is not what it used to be. Professionals now have data bases and computer programs to search through them, making split-second trading decisions for your investment that you could rarely make alone. This is why if you have money, full-scale brokers often give the highest profits.
- That said, the 2007 financial crash was partly due to a broken algorithm that investors used but did not understand. 
- Expects a professional to invest in things other than shares. While investment in the stock market may be the goal, a professional investor knows better than to put all his money in a basket. All of these, including shares, fall under the blanket definition of a "security."
- CDs, or Deposit Certificates, are savings accounts that mature at a certain date, then you get a small profit. They can range from one month to five years.
- Bonds are loans as your contribution, usually to the government, which must be repaid with interest. It is safe, consistent investments that generally exceed inflation.
- Expects a broker to invest in "mutual funds" or prepared stock collections. Funds are created either by a brokerage firm or an external agency. In principle, they allow multiple investors to take risks together by all paying together for a larger portfolio, and thus more profits, as there is usually a fund manager who buys and sells shares in it. While they are usually profitable, you need to be comfortable with someone else managing your money with little control in the end. 
[ Edit ] Tip
- Never invest more than you can afford to lose.
- Make sure you pay off some high interest debt before you start investing. For example, eliminating credit card debt may be one of the best "investments" you will ever make.
- Expect the stock market to be very unstable. Be aware that you are likely to make some losses, especially when you are still an inexperienced investor.
- Before investing, try to mix a mature / saturated stock and volatile stock, this will help you avoid wasting time and money from the "work done equal to zero" concept!
- Investigate and consult well-known individuals who become wealthy from the stock market. Find out how they think and act, and hopefully it will help you get used to the market trends.
- Depending on what you want from your shares, a good time to sell is usually when they are twice the original value.
[ Edit ] Warnings
- Most financial advisers will tell anyone approaching retirement to lower their exposure to the stock market and invest more in bonds. This is to limit the risk of losing money in the short term. Those who foresee a long pension period should remain invested in shares to some extent.
- If you do not diversify your portfolio, you and your money are stuck with the result of which category or market you choose. If you buy a variety of stocks, then when a specific market collapses, the others keep you afloat.
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[ Edit ] References
Edit ] Quick overview
- [1945 http://www.bizacquisition.com/Value_of_a_Business.html
- ↑ http://www.nasdaq.com/ investing / getting started-in-stock.stm
- ↑ http://www.investopedia.com/ask/answers/05/ 042205.asp
- ↑ http: / /winninginvestor.quickanddirtytips.com/when-should-you-s ell-a-stock.aspx Tu 19659144 te http://www.investopedia.com/articles/pf/06/dependablebroker.asp
- ↑ https://www.firstrade.com/content/ en-us / education / margin / margincash /
- [1945 http://stansberryresearch.com/opening-a-brokerage-account/  ↑ http://stansberryresearch.com/opening- a-brokerage-account /
- ↑ http://www.theguardian.com/science/2012/feb/12/black-scholes- equation-credit-crunch
- ↑ http: / /www.businessinsider.com/investing-basics-young-people-5-2014-9