Tips to Help You Get Started in Stocks
The dream of many investors is to get into the stock market. This is a solid decision because historically stocks have been the smart choice for the long term.
You’ll discover there are numerous ways you can invest in stocks. Consider mutual funds, ETFs, index funds, and more. Here are a few tips to consider to help you determine how to invest.
Your Level of Risk
Before you jump into investing, you should be able to answer a few questions. For instance, are you a risk taker or do you prefer a more solid investment? How would you feel if a stock dropped 10 percent in a single day or 30 percent in a few weeks? Would you sell it all?
These answers will help you decide which types of stocks to invest in. Mutual funds or index funds are the choices for those who want a safe investment without a lot of research.
Amount of time for investing and interest
Funds are ideal for the investor who doesn’t have a lot of time to spend monitoring the market. They are handled by the fund manager. Investing in individual stocks takes more time because you must think about earnings and prospects for the future. You have to know more information to be able to tell if the stock will make money or be a disaster.
If you have at least two or three hours each week to learn about various companies, investing in individual stocks may be the right direction. If not, funds would be the better choice.
To reduce your risk in investing, don’t limit yourself to one type of asset. While a particular stock may have the potential for big rewards, if it moves in the wrong direction, your entire portfolio will be impacted. It’s better to mix it up with some real estate, commodities, insurance and consumer goods.
You can diversity even more by adding in cash and bonds. You have to make the determination how much to invest in each sector, but it helps reduce the risk you carry.
A Beginner’s Portfolio
For a beginning investor, you should start out with index funds. One that has some international options and one for small companies as well as one in the broad market would diversify your portfolio while providing steady performance.
If you prefer this option, you need to select at least 12 and up to 20 stocks for your portfolio. You need to learn about each company and choose various sectors. You can also choose a mixture of funds and stocks while selecting maybe about six or eight stocks.
Now that you know what you want your portfolio to look like, you need to find a broker. Talk to the person and decide if you feel comfortable with them. Deposit the money and open your account. Don’t start buying everything at once. Start out slowly, taking several months to complete your investment. This helps eliminate risk and allows you to review your portfolio.
As you learn more about trading, you will continue to add more to your portfolio. You may make changes until you have a solid portfolio which will help you reach your goals. Just don’t be afraid to take things slow and make sure you are prepared for the first investment.