You may have heard it said that investing in the stock market is not for sissies. That maxim is not necessarily true. As with any new venture, if you do your homework and learn some basics, study historical performance, and enter with eyes wide open, over time stock investments can pay off handsomely. There are numerous excellent support resources such as Online Trading Academy. Use these resources to better understand the following broad concepts, and then branch out into more in-depth studies.
Stocks Vs. Mutual Funds
When purchasing stocks, you can choose to buy either individual stocks or mutual funds. Individual stock purchases represent the purchase of stock in an individual company such as Apple or XYZ Company. As the stockholder, you decide how many shares to buy, and then initiate the purchase through a brokerage. Generally it is considered more adventurous to purchase individual stocks, as you are putting all of your eggs in that one company’s basket. However, the return on investment may pay off in the form of high reward.
Mutual funds are more diversified, as each fund is comprised of a number of individual stocks, often all from a related sector, which is managed by a professional fund manager. Because performance risk is shared amongst many individual companies, the risk is minimized. Conversely, it also tends to minimize the reward and is considered a more passive investment option.
How Age Factors Into Determining Trading Strategy
Before investing in the stock market, take time to determine your goals. Are you working towards retirement savings? If so, is retirement likely to be forty years from now, or are you already in your late fifties? If retirement is at least fifteen years away, time is on your side. A high risk, high reward approach may be acceptable because there is ample time to correct and recover from those investments that do not pay off. If you are rapidly approaching, or already in retirement, you should strongly consider a lower risk, potentially lower reward approach. Any costly stumble could position you in a situation you don’t have time to recover from.
When To Buy And Sell
Novice investors should understand the meaning of buy low, sell high. Always purchase when your desired stock or fund is at a low price. Analyze the stock’s price chart over time to understand its pricing trends. Sell when the price is up.