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Learn to Profit With Stock Market Investing
When you buy a stock you literally are purchasing part-ownership in the underlying corporation. If you buy a single share of Microsoft stock, then you own part of the company right along with founder Bill Gates. In this example, as the Microsoft stock price rises, so does the value of your share. Likewise, when it loses value, so does your share. There you have it. The entire stock investing industry in a nutshell. But how does one go about actually investing in the stock market? It’s not as hard as you might think but, take heed, there is risk involved.
Pick a Broker
In order to buy a stock you need to go through a broker. Sorry, that’s how the system works. Before the Internet, this meant calling up or visiting some guy and telling him what you want him to do. In return for this, he charged an annual administration or management fee that reduced any profits you might have generated throughout the year accordingly.
With the rise of Internet trading, individuals have been able to easily open an account through an online broker and pay a small fee (anywhere from $5-10) for each trade. This ushered in the concept of unaffiliated daytraders cranking through dozens of trades daily from the privacy of their own home. Do you need a personal broker like in the old days? Maybe. It depends on your personality and motivation to learn how to evaluate stocks and trade them on your own.
Funds vs Individual Stocks
Before running out and buying up a bunch of stocks, you should understand a basic difference in approach. While you could load up on an individual stock, like Microsoft, you assume more risk in doing so. The entire value of your portfolio rests on a single company’s fortunes. Most financial advisors would suggest against that strategy, especially if you’re new to the game.
A safer approach would be to purchase what are called mutual funds. A mutual fund essentially allows you to buy across a wide variety of stocks with a single trade. Rather than owning part of a single company, you own a smaller part of maybe hundreds (or thousands) of companies. You can find brokers that specialize in mutual funds. The big advantage to this approach is that you minimize your risk by spreading it across so many companies. Even if Microsoft tanked, the effect will be mitigated by other fund entities you own that are holding their own or even gaining.
The choice you make depends on your risk tolerance. Buying a single company allows for the potential of greater profit if it shoots upward and greater risk when it tumbles. Investing in a mutual fund is a more moderate strategy. The fund is likely to show similar gains each year but never crash completely. You might decide to put most of your money in a fund and invest a smaller amount in individual stocks.
How to Get Started
Once you have enough of a nest egg that you begin thinking about how to increase its value, slow down, put those dreams of filthy riches out of your head, and think rationally. Do not dump your entire savings into the market on a whim. Start with a small percentage of your overall stash and start with that. Do not invest money you can’t afford to lose. Consider this first foray as a learning experience. You’ll quickly figure out your investment style and risk tolerance. You might want to enlist the services of a financial advisor at this point. Your best bet is to find one that only makes money when you make money. This means they will look out for your interests and not generate needless transaction fees by churning your account into and out of market positions.
Please don’t consider this brief guide all you need to know about stock market investing. Instead, think of it as a basic primer that points you in several right directions for additional research and education. A final bit of advice. Greed kills in any kind of investing. Make it your goal to participate in the market, not beat it to death. In the end, the market always wins when if you try to butt heads with it. Just go along for the ride and you might end up doing quite well.
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