It is no coincidence that most wealthy people invest in the stock market. While fortunes can be both made and lost, investing in stocks is one of the best ways to create financial security, independence, and generational wealth.
Whether you are just beginning to save or already have a nest egg for retirement, your money should be working as efficiently and diligently for you as you did to earn it.
To succeed in this, however, it is important to start with a solid understanding of how stock market investment works. This article will guide you through the process of making investment decisions and put you on the right path to becoming a successful investor.
This article discusses investing in stocks specifically. For stock trading, see How to Trade Stocks. For mutual funds, see How to Decide Whether to Buy Stocks or Mutual Funds. This version of How to Invest in Stocks was reviewed by Michael R.
Lewis on February 18, Community Dashboard Random Article About Us Categories Recent Changes. Write an Article Request a New Article Answer a Request More Ideas Make a list of things you want.
For example, what lifestyle do you want to have once you retire? Do you enjoy traveling, nice cars, or fine dining? Do you have only modest needs? Use this list to help you set your goals in the next step.
How to Invest in Stocks (with Pictures) - wikiHow
For example, do you want to send your children to a private school or college? Do you want to buy them cars? Would you prefer public schools and using the extra money for something else?
Having a clear idea of what you value will help you establish goals for savings and investment. Set your financial goals. In order to structure an investment plan, you must first understand why you are investing.
In other words, where would you like to be financially, and how much do you have to invest to get there? Remember that costs vary widely depending on the location and type of school public, private, etc. Also remember that college expenses include not only tuition, but also fees, room and board, transportation, books and supplies.
This is especially true for long-term projects such as retirement funds. Determine your risk tolerance. Acting against your need for returns is the risk required to earn them. Your risk tolerance is a function of two variables: In other words, are you near the low end or closer to the peak of your income-earning potential?
Are you willing to accept more risk to earn greater returns? What are the time horizons of your investment goals? How much liquidity i. Don't invest in stocks until you have at least six to twelve months of living expenses in a savings account as an emergency fund in case you lose your job. If you have to liquidate stocks after holding them less than a year, you're merely speculating, not investing. If the risk profile of a potential investment does not conform to your tolerance level, it's not a suitable option.
Your asset allocation should vary based on your stage of life. For example, you might have a much higher percentage of your investment portfolio in stocks when you are younger. Also, if you have a stable, well-paying career, your job is like a bond: This allows you to allocate more of your portfolio to stocks. Conversely, if you have a "stock-like" job with unpredictable income such as investment broker or stock trader, you should allocate less to stocks and more to the stability of bonds.
While stocks allow your portfolio to grow faster, they also pose more risks. As you get older, you can transition into more stable investments, such as bonds. Learn about the market. Spend as much time as you can reading about the stock market and the larger economy. Listen to the insights and predictions of experts to develop a sense of the state of the economy and what types of stocks are performing well.
There are several classic investment books that will give you a good start: The Intelligent Investor and Security Analysis by Benjamin Graham are excellent starter texts on investing. The Interpretation of Financial Statements by Benjamin Graham and Spencer B.
This is a short and concise treatise on reading financial statements. Expectations Investingby Alfred Rappaport, Michael J. This highly readable book provides a new perspective on security analysis and is a good complement to Graham's books. Common Stocks and Uncommon Profits and other writings by Philip Fisher. Warren Buffett once said he was 85 percent Graham and 15 percent Fisher, and that is probably understating the influence of Fisher on shaping his investment style. Buffett made his entire fortune investing, and has lots of very useful advice for people who'd like to follow in his footsteps.
Buffett has provided these to read online free: The Theory of Investment Valueby John Burr Williams is one of the finest books on stock valuation. One Up on Wall Street and Beating the Streetboth by Peter Lynch, a highly successful money manager.
These are easy to read, informative and entertaining. Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay and Reminiscences of a Stock Operator by William Lefevre use real-life examples to illustrate the dangers of emotional overreaction and greed in the stock market. You can also enroll in basic or beginner investment courses offered online.
Sometimes these are offered free by financial companies such as Morningstar and T. These are often low-cost or free and can provide you with a solid overview of investment. Look online to see if there are any in your area. You can literally do this on paper, or you can sign up for a free practice account online at places such as How the Market Works.
Practicing will help you hone your strategy and knowledge without risking real money. Formulate your expectations for the stock market. Whether you are a professional or a novice, this step is difficult, because it is both art and science. It requires that you develop the ability to assemble a tremendous amount of financial data about market performance.
This is why many investors buy the stock of products that they know and use. For such household products, try to envision economic conditions that might lead you to stop purchasing them, to upgrade, or to downgrade. If economic conditions are such that people are likely to buy a product you are very familiar with, this might be a good bet for an investment. While trying to develop general expectations about the market and the types of companies that might be successful given present or expected economic conditions, it's important to establish predictions in some specific areas including: The direction of interest rates and inflation, and how these may affect any fixed-income or equity purchases.
Consumers have more money to make purchases, so they usually buy more. This leads to higher company revenues, which allows companies to invest in expansion. Thus, lower interest rates lead to higher stock prices. In contrast, higher interest rates can decrease stock prices. High interest rates make it more difficult or expensive to borrow money. Consumers spend less, and companies have less money to invest.
Growth may stall or decline. Low interest rates combined with moderate inflation usually have a positive effect on the market. High interest rates and deflation usually cause the stock market to fall. Favorable conditions within specific sectors of an economy, along with a targeted microeconomic view. In strong economies, consumers are likely to feel confident about their futures, so they spend more money and make more purchases. These industries and companies are usually not as affected by the economy.
For example, utilities and insurance companies are usually less affected by consumer confidence, because people still have to pay for electricity and health insurance. Determine your asset allocations.
In other words, determine how much of your money you will put in which types of investments. Decide how much money will be invested in stocks, how much in bonds, how much in more aggressive alternatives and how much you will hold as cash and cash equivalents certificates of deposit, Treasury bills, etc.
Your "risk and return" objectives will eliminate some of the vast number of options. As an investor, you can choose to purchase stock from individual companies, such as Apple or McDonalds.
This is the most basic type of investing. A bottom-up approach occurs when you buy and sell each stock independently based on your projections of their future prices and dividends. Investing directly in stocks avoids fees charged by mutual funds but requires more effort to ensure adequate diversification. Select stocks that best meet your investment needs. If you are in a high income tax bracket, have minimal short- or intermediate-term income needs, and have high risk tolerance, select mostly growth stocks that pay little or no dividends but have above-average expected growth rates.
Low-cost index funds usually charge less in fees than actively-managed funds. The fund would purchase most or all of the same assets, allowing it to equal the performance of the index, less fees. This would be considered a relatively safe but not terribly exciting investment. Advocates of active stock picking turn their noses up at such investments.
Choose index funds with the lowest expense ratio and annual turnover. See Decide Whether to Buy Stocks or Mutual Funds for more information whether individual stocks or mutual funds are better for you. An exchange-traded fund ETF is a type of index fund that trades like a stock.
ETFs trading stocks schools unmanaged portfolios where stocks are not continuously bought and sold stock brokers pleasantville with actively managed funds and can often be traded without commission.
You can buy ETFs that are based on a specific index, or based on a specific industry or commodity, such as gold. You can also invest in actively managed mutual funds. These funds pool money from many investors and put it primarily into stocks and bonds. Individual investors buy shares of the portfolio. Mutual fund expense ratios can end up hurting your rate of return and impeding your financial progress. For example, your portfolio might be more heavily weighted towards equities when you are younger and automatically transfer more of your investments into fixed-income securities as you get older.
In other words, they do for you what you might be expected to do yourself as you get older. Costs and fees can eat into your returns and reduce your gains. It is vital to know what costs you will be liable for when you purchase, hold, or sell stock.
Common transaction costs for stocks include commissions, bid-ask spread, slippage, SEC Section 31 fees and capital gains tax. For funds, costs may include management fees, sales loads, redemption fees, exchange fees, account fees, 12b-1 fees, and operating expenses. Determine the intrinsic value and the right price to pay for each stock you are interested in.
Intrinsic value is how much future stock market forecast stock is worth, which can be different from the current stock price. The right price to pay is generally a fraction of the intrinsic value, to allow a margin of safety MOS.
There are many techniques used to value stocks: Discounted cash flow DCF model: A typical DCF calculation projects a growth rate for annual free cash flow operating cash flow directv choice channels printable list capital expenditures for the review forex automoney 10 years to calculate a growth value and estimate a terminal growth rate thereafter to calculate a terminal value, then sum up the two to arrive at the DCF value of the stock.
It compares the stock's current price ratios with an appropriate benchmark and the stock's historic average ratios to determine the price at which the stock should sell.
Once you've decided which stocks to buy, it is time to purchase your stocks. Find a brokerage firm that meets your needs and place your orders. You can select a discount broker, who will simply order the stocks you want to purchase. You can also choose a full-service brokerage firm, which will cost more but will also provide information and guidance. The most important factor to consider here is how much commission is charged and what other fees are involved.
Some brokers offer free stock shake your money maker youtube ludacris if your portfolio meets a certain minimum value e. Merrill Edge Preferred Rewardsor if you invest within a select list of stocks whose companies pay the transaction costs e.
Some companies offer direct stock purchase plans DSPPs that allow you to purchase their stock without a broker. If you are planning on buying and holding or dollar cost averaging, this may be your best option. Search online or call or write the company whose stock you wish to buy to inquire whether they offer such a plan.
Build a portfolio containing between five and 20 different stocks for diversification. Diversify across different sectors, industries, countries, company size, and style "growth" vs. Hold for the long term, five to ten years or preferably longer.
Avoid the temptation to sell when the market has a bad day, month or year. The long-range direction of the stock market is always up. On the other hand, avoid the temptation to take profit sell even if your stocks have gone up 50 percent or more. As long as the fundamental conditions of the company are still sound, do not sell unless you desperately need the money.
It does make sense to sell, however, if the stock price appreciates well above its value see Step 3 of this Sectionor if the fundamentals have drastically changed since you bought the stock so that the company is unlikely to be profitable anymore. Invest regularly and systematically. Dollar cost averaging forces you to buy low and sell high and is a simple, sound strategy. Set aside a percentage of each paycheck to buy stocks.
Remember that bear markets are for buying. That may sound scary, but the market has always bounced back, even from the crash that occurred between and The most successful investors have bought stocks when they were "on sale.
It is important to list of stockbroking companies in malaysia appropriate benchmarks in order to measure the performance of your stocks, as compared to your expectations. Develop standards for how much growth you require of each specific investment in order to consider it worth keeping. Typically these benchmarks are based on the performance of various market indexes.
These allow you to determine whether your investments are performing at least as well as the market overall. It may be counter-intuitive, but just because a stock is going up does not mean it is a good investment, especially if it is going up more slowly than similar stocks.
Conversely, not all shrinking investments are losers when similar investments are doing even worse. Compare performance to expectations. You must compare the performance of each investment to the expectations you established for it in order to determine chris moneymaker before poker worth.
This goes for assessing your other asset allocation decisions as well. Investments that do not meet expectations should be sold so your money can be invested elsewhere, unless you have good reason to believe your expectations will soon be met. Give your investments time to work out. One-year or even three-year performance is meaningless to the long-term investor. The stock market is a voting machine in the short term and a weighing machine in the long term.
Be vigilant and update your expectations. Once you have purchased stock, you must periodically monitor the performance of your investments.
This is a part of investing. The key is to properly process and assess all new information and implement any changes according to the guidelines set in the previous steps. Consider whether your market expectations were correct.
If not, why not? Use these insights to update your expectations and investment portfolio. Consider whether your portfolio is performing within your risk parameters. It may be that your stocks have done well, but the investments are more volatile and risky than you had anticipated. If you aren't comfortable with these risks, it's probably time to change investments.
Consider whether you are able to achieve the objectives you set. It may be that your investments are growing within acceptable risk parameters but are growing too slowly to meet your goals. If this is the case, it's time to consider new investments.
Guard against the temptation to trade excessively. After all, you are an investor, not a speculator. In addition, every time you take a profit, you incur capital-gains taxes.
Besides, every trade comes with a broker's fee. Do your own research and do not seek or pay attention to any stock tips, even from insiders. Warren Buffett says that he throws away all letters that are mailed to him recommending one stock or another. He says that these salesmen are being paid to say good things about a stock so that the company can raise money. Don't pay too much attention to media coverage of the stock market.
Focus on investing for the long term at least 20 yearsand don't be distracted by short-term price gyrations. Consult a reputable broker, banker, or investment adviser if you need to. Never stop learning, and continue to read as many books and articles as possible written by experts who have successfully invested in the types of markets in which you have an interest.
You will also want to read articles helping you with the emotional and psychological aspects of investing, to help you deal with the ups and downs of participating in the stock market.
It is important for you to know how to make the smartest pdf the bible of options strategies possible when investing in stocks, and even when you trading range-bound markets in forex make wise decisions you should be prepared to deal with losses in the event that they occur.
When is the best time to sell the stock? Sell it when the price has recently risen substantially unless you have good reason to believe it will continue to rise in the immediate future.
Do not sell it when the price has recently fallen substantially unless you have good reason to believe it will continue to fall in the immediate future. Even though this is an emotionally difficult way to buy and sell, it's the best way to make money over the long term.
Not Helpful 0 Helpful 0. How does a person start trading on the JSE? You can do it through major banks like FNB and Absa. Other options include Sanlam, iTrade and PSG. Dig through Google for more options and find one that suits you.
Not Helpful 2 Helpful 4. Do this through any brokerage firm, particularly an online discount broker. Not Helpful 6 Helpful 4. How often should I transfer my earnings to my bank account?
Put your paycheck in your bank every payday. If your employer offers direct deposit, that's the easiest way to do it. Not Helpful 5 Helpful 3. Where can I start my own investing?
Invest through an online discount broker or a mutual fund company. Not Helpful 4 Helpful 2. How can I do a comparison of the top stock brokers? The easiest thing to do is compare discount brokers online. Do a Web search for "discount brokers. Not Helpful 3 Helpful 1. How often should a person trade a stock for a short term 2 years? It depends on a person's trading philosophy. One person might buy a stock and hold it continuously for 20 years.
Another person might buy a stock and hold it for five minutes. It's possible to turn a profit with either a short-term or a long-term trading strategy. It just depends on what you're trying to accomplish: In either case there are no guarantees -- you could lose money. Already answered Not a question Bad question Other. If this question or a similar one is answered twice in this section, please click here to let us know.
Tips Buy companies that have little or no competition. Airlines, retailers and auto manufacturers are generally considered bad long-term investments, because they are in fiercely competitive industries.
This is reflected by low profit margins in their income statements. In general, stay away from seasonal or trendy industries like retail and regulated industries like utilities and airlines, unless they have shown consistent earnings and revenue growth over a long period of time. Wall Street focuses on the short-term.
This is because it is difficult to make predictions about future earnings, especially far into the future. Most analysts project earnings for up to ten years and use discounted cash flow analysis to set target prices.
You can beat the market only if you hold a stock for many years. Information is the lifeblood of successful investment in the stock and fixed-income markets. The key is to stay disciplined in implementing your research and in assessing its performance by monitoring and adjusting. That way, they will always have an excuse when it goes down in value.
Warren Buffett is famous for saying, "Risk is for people who don't know what they're doing. That is the essence of value investing. Remember that you are not trading pieces of paper that go up and down in value. You are buying shares of a business. The health and profitability of the business and the price you will pay are the only two factors that should influence your decision.
Don't look at the value of your portfolio more than once a month. If you get caught up in the emotions of Wall Street, it will only tempt you to sell what could be an excellent long-term investment. Before you buy a stock, ask yourself, "if this goes down, am I going to want to sell or am I going to want to buy more of it?
Be mindful of your biases and do not let emotion dictate your decisions. Trust in yourself and the process, and you will be well on your way to becoming a successful investor.
Companies with strong brand names are a good choice. Invest in companies that are shareholder-oriented. Most businesses would rather spend their profits on a new private jet for the CEO than pay out a dividend.
Long-term-focused executive compensation, stock-option expensing, prudent capital investments, a sound dividend policy, and growing EPS and book-value-per-share are all evidence of shareholder-oriented companies. Understand why blue chips are good investments: Identifying such companies before the crowd does will permit you to reap larger rewards. Learn to be a 'bottom up' investor.
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Invest in tax sheltered accounts such as Roth IRA or k and max them out each year before putting money into taxable accounts. You can save a great deal in taxes over the long run. Before buying stocks, you might want to try "paper trading" for a while.
This is simulated stock trading. Keep track of stock prices, and make records of the buying and selling decisions you would make if you were actually trading.
Check to see if your investment decisions would have paid off. Once you have a system worked out that seems to be succeeding, and you've gotten comfortable with how the market functions, then try trading stocks for real.
Lower yielding stocks tend to be safer, have greater growth potential, eventually leading to bigger dividends later, and save you on taxes by allowing you to defer tax on unrealized capital gains rather than paying tax on dividend, a form of forced distribution.
Warnings Invest only money you can afford to lose. Stocks can go down sharply over the short term, and even an investment that appears smart can go bad. Do not attempt to time the market by guessing when stocks are ready to reverse direction. Nobody other than liars can time the market.
Do not buy stocks on margin. Stocks may fluctuate widely without notice, and using leverage can wipe you out. You don't want to buy stocks on margin, watch stocks plunge 50 percent or so, wiping you out, and then bounce right back.
Buying stocks on margin is not investing, but speculating. Stick with stocks, and stay away from options and derivatives, which are speculations, not investments. You are more likely to do well with stocks. With options and derivatives you are far more likely to lose money. Do not use technical analysis, which is a technique for traders, not investors. Its viability as an investment tool is debated long and loudly.
When it comes to money, people may lie to save their pride. When someone gives you a hot tip, remember that it is just an opinion. Do not day-trade, swing-trade, or otherwise trade stocks for very short-term profits. Remember, the more frequently you trade, the more commissions you incur, which will reduce any gains you make.
Also, short-term gains are taxed more heavily than long-term more than one-year gains. The best reason to avoid ultra-short-term trades is that success in that area requires a great deal of skill, knowledge and nerve, to say nothing of luck.
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It is not for the inexperienced. Don't blindly trust the investment advice of anyone, especially someone who will make money from your trades. This could apply to brokers, advisers or analysts. Don't blindly feed the dogs. In other words, do not buy stocks that have had low returns and appear cheap. Most cheap stocks are cheap for a reason. All stocks can go to zero, and many have. Avoid "momentum investing", the practice of buying the hottest stocks that have had the biggest run recently.
This is pure speculation, not investing, and it does not work consistently. Just ask anyone who tried it with the hottest tech stocks during the late s. Furthermore, remember that past performance does not guarantee future returns. Do not engage in insider trading. If you trade stocks using inside information before the information is made public, you may face prosecution for felony crimes.
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