FAQ On Stock Buying
Investing in the stock market can be intimidating, especially if you have never owned stocks before. Learning about the stock market before you invest can make you a smarter, and, ultimately, a wealthier investor. There are a number of things to keep in mind when investing in the stock market, including the potential risks and how you can reduce them.
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Who Should Invest in Stocks?
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It is important for all long-term investors to build a well diversified portfolio, and that means investing in a mixture of stocks, bonds and fixed-income instruments. If you are saving for retirement, college or another long-term goal, stocks can give you the growth potential you need to stay ahead of inflation and build long-term wealth. Even after you retire, keeping some money in stocks may help you maintain your buying power and provide the extra growth you need to make your money last.
What Are the Risks?
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The stock market can be extremely volatile, especially over the short term, and it is important to be aware of that volatility. If you purchase an individual stock, you may have the risk that the company will go out of business and you will lose all of your money. Even if you choose a mutual fund, you can run the risk that the value of the fund can decline sharply. That is one of the reasons to be cautious of investing in short-term money in the stock market.
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What Is A Mutual Fund?
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Diversification is important when you invest in stocks and you can get that diversification with a mutual fund. Mutual funds hold many different stocks and that can reduce the risks associated with stock market investing. Index funds hold all of the stocks in a given index, such as the total stock market or the Standard and Poors 500; however, managed funds use professional money managers to pick and choose the stocks they feel will do best in the current market environment.
How Do I Invest?
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You can invest in the stock market through a traditional broker, where you pay for investment advice as well as stock trades. If you are comfortable choosing your own stocks, you can choose an online discount broker instead. Online discount brokers typically do not provide any investment advice, but they do provide much lower commissions than traditional firms.
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References
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