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Step 1
Amass capital. Before you begin investing in the stock market, you want to save at least 5 thousand dollars, preferably 10 thousand. This is so you can diversify your risk and not put all of your eggs in one basket. That's not to say you can't invest while you're waiting to amass that capital. If you have less money, consider buying a mutual fund. A mutual fund is a company that owns a collection of stocks. By buying a share in a mutual fund, you own a piece of all of those stocks as well. But as far as individual investing goes, you will need at least 5 thousand dollars.
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Step 2
Open an account. For the casual investor just getting started, opening an online account is the way to go. There are many reputable companies out there. Surf for a "brokerage account" in your favorite search engine and take the time to familiarize yourself with a few different brokerage houses. Etrade, Ameritrade, Schwab and Scottrade are all very popular. The things to look for are the amount each trade will cost and the amount of research each site provides. Truthfully, it's really about personal appeal, because in today's fast-paced society, most online brokerages are comparable.
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Step 3
Fund the account--usually by way of check or wire transfer from your checking or savings account. You may have to wait for the funds to clear before purchasing stock. This should take no more than five business days.
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Step 4
Do your research! Don't be compulsive and just "buy to buy." If you miss a spike in a stock you like for a day, don't worry about it. If it's truly a good company, there will be many more up days. Start with companies you know and companies you use. Go to Yahoo! or another financial investment site, plug in their ticker symbol and read up on them. The best way to compare companies is something called a price-to-earnings ratio (p/e). Check out that company's p/e compared with other ratios of similar companies. If it is higher, that's a good sign; if it's lower, then that might be a not-so-good sign. The next thing you want to look at is the company's growth rate. This is given in percentages. If the company you like is growing at 30 percent, and the competitor is growing at 15 percent, then that's a good thing. Your company is growing faster than its competitor. Now these are just the simple, broad strokes. There have been a million books written on the subject. Find respected investors (Warren Buffet) and read their books. This will be your greatest education before investing.
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Step 5
Define your goals. Now that you've done some research and are narrowing down the list of potential companies you want to invest in, take a moment to ask yourself what your investment goals are. Are you in your 20s or in your 50s? The younger you are, the more risk you can take. The older you are, the more cautious you should be as retirement approaches. Also, what is your "risk tolerance"? If you invest 10 thousand and lose 5 thousand, are you okay with that? While it's not exactly thrilling to anybody to lose money, by betting on a speculative stock, that's the risk you take. However, the upside reward on that same stock might mean you could double your money. These are the things you need to weigh. And again, additional reading from the masters will enlighten these concepts further.
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Step 6
Buy low, sell high. Sounds easy enough, right? Well, if it was that easy, everyone would be a millionaire. Now that you've got the names of the companies you want to buy, have done the research and have an account, you are ready to invest in the stock market! Log into your account and buy your first stock. Never use a market order. Decide what price you want to pay and input it. Be patient! Stocks trade in a range. More often that not if your price is within 2 percent of the current price, you will get your order filled--maybe not today, but over the next couple of days. Also, do not buy all of your stock in your chosen company all at once. That way, if it goes down, you have more capital to commit. Thus you will buy at the lower price again and be "averaged in" to the position. With your initial 10 thousand dollars, you should look to divide it evenly over four to five stocks based on your risk tolerance.
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Step 7
Be active. Now that you've invested, stay on top of your company's developments. Remember you own a piece of the company, and you have a right to know what's going on! Read the press releases, listen to the conference calls and continuously review your positions, making sure that you still believe in the company and how they are selling their products. When one of those things changes, or you've made a significant amount of money, it is time to sell. (Always take some profits along the way.) Better to miss two points on the up side than catch four on the downside!
Comments
sportyguy said
on 6/3/2007 This goes along with m any of the books i have read on the subject thanks for the tips!