Perhaps you have recently received a small inheritance and would like to make it grow, you have decided to take a new career path or perhaps you have finally reached a state where you can now begin to build a nest egg. Whether you have only a few hundred dollars or several thousands, the stock market remains a viable option for those who are willing to put in the effort required to make smart investment decisions.
Find Credible Sources
Learning how to navigate through these waters, further muddied by the recent economic crisis, can be a daunting task if you are a beginning investor. Searching online for advice doesn’t help, either, especially since there are thousands of sites that promise “expert” advice for free. One way to separate the wheat from the chaff is by talking to someone you know and trust who has the experience to help direct you to credible news sources. Generally, however, publications that have been around for a long time are more likely to offer quality investment advice.
Take A Class
In addition, you might also want to enroll in a few accounting courses. While this may not teach you which stocks to select, it will help you learn how to read a company’s financial statements. This can be quite useful when trying to analyze the worth of a company. You can also gain some knowledge about the different ways investments are taxed, though you may want to take a course in tax preparation if you plan to do your own returns. Lastly, accounting courses are a great way to learn basic bookkeeping skills, which are essential if you want keep track of your finances and plan a sound budget.
Before you invest, it’s important to consider your goals for the future as well as examine your current financial state. If you want to fund your retirement, for instance, it’s best to start young so that you fully benefit from compound interest. Historically, the average rate of return for the stock market is 10%, which can make even a modest investment of $100 grow into a tidy sum given enough time. Keep in mind, however, that even the most stable investments carry some risk, which is why you may want to only invest what you can afford to lose.
Pay Off High Interest Debts
Another factor to consider is the amount of debt you are carrying. While you don’t have to become debt-free to invest safely, there are some types that you should pay off first. Credit card companies are notorious for charging high interest rates, so there is no point in investing if all your stock market gains are being eaten away by $20,000 of credit card debt with 14% interest or more. It’s important, therefore, to compare interest rates to see whether or not you stand to gain anything by investing.
Once you have determined your financial solvency, you can then start picking stocks. Hundreds of articles have been written on this subject, so you should do a fair amount of research and talk to your broker about what best suits your needs. Generally, beginners may want to look at mutual funds first. Mutual funds remain popular because they include a large and diverse number of stocks, which makes them more likely to remain steady during times of economic instability. These investments, however, grow more slowly, which means that you should expect to hold them for several years. No matter what kind of stock you choose, it’s may be best to learn about the company or product before you invest.
Find A Good Broker
Once you have an idea about which stocks to choose, you then have to find a brokerage firm that carries them. In addition, you should think about what kind of broker best suits your needs. Full-service brokers, for instance, usually offer the largest variety of stocks and are also willing to help you with investment decisions, though this comes with higher fees that can cut into any gains you make. Discount brokers are more affordable but won’t offer any guidance, which might not be the best choice for a beginner who needs help. Whatever firm you choose, perform a background check first to see if they offer reliable service.
Lastly, it is important to stay informed about investment fraud. Although criminals are adept at disguising scams with a legitimate face, there are a few warning signs you can recognize. One type of scam is the “pump-and dump,” which involves spreading false information to artificially inflate a company’s stock in order to trick people into investing in a worthless product. Usually, if it sounds too good to be true, it isn’t. You will therefore want to remain highly skeptical about any investment scheme that promises a high yield with minimal risk.
Depending on how deeply you want to become involved, investing in the stock market can become a very complicated process, which is why you want to do as much research as possible before taking the plunge. With enough time and effort, however, you can avoid many of the pitfalls that often frustrate beginners, especially if you are guided by quality financial advice.
Julie Lee, a freelancer writer online, writers on a wide range of topics from finance and business to college degree programs. Most recently, Julie has written about online business degree programs and small business financial tips.