How to Start Investing in the Stock Market
Despite recent economic difficulties, the stock market offers some of the best returns on investment available to long-term investors. Whether you only have a few hundred or a few thousand dollars, there is an investment strategy for you. The key to success is careful, conscious investing with an eye toward your investing personality. All investors have their own savings ability, long-term needs and risk tolerance, and no single investment plan works for everyone.
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Instructions
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Your Investment Personality
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Determine how much money you have to invest. In general, your investments should not act as your short-term savings. Make sure you have enough savings for emergencies and near-future needs, and minimize any debt. Do not invest money you cannot afford to lose.
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Decide how frequently you will add to your investments, and in what amounts. This helps you determine your investment method. Some people set aside a small amount each month, while others deposit a few thousand dollars once or twice per year -- either method is fine.
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Determine your risk tolerance. Some people enjoy the roller coaster ride of riskier investments, but most people would prefer to avoid large swings in their account balances. Consider how you will feel if your portfolio drops in value, a little or a lot.
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Set your financial goals. What is your purpose for investing? Make a list of your goals with approximate dollar values and timelines -- how much money will you need for this goal and when will you need it? Evaluate your goals, risk tolerance and savings ability together to make sure that they are in line with each other.
Your Investment Plan
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Decide how involved you want to be in the investment process. You might want to pick your own stocks, one at a time. You might want to pay someone else to do it for you, either a personal financial advisor or a mutual fund manager.
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Research investment options. Begin with methods only: mutual funds, advisors and individual stocks. Those with smaller amounts to invest should research mutual funds and dividend reinvestment programs, as both of these allow for incremental small investments over time, and you don't need to buy a whole share at once.
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Decide what investment method works best for you. More hands-off investors may go with mutual funds or an advisor, while others may be interested in individual stock purchase through an online brokerage firm.
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Develop investment criteria. Know what will make a good investment for you: dividends or price growth, stability or risk, etc.
Your First Stocks
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Read the material. If you're interested in individual stocks, look over company investor information and annual reports. You can usually find this information on the company website under "investor information." Mutual funds issue a prospectus that tells you everything you need to know about the fund that is available through the fund website. Look for funds that focus on stocks. In either case, look at outside analysis of the investment through an independent site like Morningstar.com. Read it all, thoroughly.
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Decide to invest -- or not. Look over the investment based on your risk profile, your long-term goals and the other investment criteria you developed during the planning stage. If the stock or fund meets your criteria, invest. If not, let it go and look for something else.
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Open an account with the mutual fund company, an online brokerage firm or an investment advisor. Provide your name, address, Social Security number and other identifying information. Transfer your first deposit electronically or deposit a paper check.
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Place a trade order. If you're handling things yourself, you'll need to order your purchase. Mutual fund companies and online brokerage firms offer both online trades and phone orders. You need to know what you want to buy, the stock ticker, and dollar or share amount.
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Monitor your purchases and make additional investments over time.
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Tips & Warnings
Many analytical and brokerage sites let you create a "watchlist" of stocks. This is a great tool for portfolio monitoring, as well as keeping an eye on potential investments.
There are hundreds of investing strategies in the world, and many of them are sound. Be wary, however, of any strategy that promises big returns overnight or seems too good to be true. Make sure any investment you make fits into your long-term goals.
