Investing For Beginners – How to Get Started With Stocks
Investing For Beginners – How to Get Started With Stocks
Perhaps you just inherited a significant sum of money, or you received a lump sum payment from a 401K maybe it is time to learn How to Get Started With Stocks. Maybe you are just starting your first job and you want to begin setting aside money for retirement, for a college fund, or to buy a house. Whatever the reason, you have determined that you need to begin developing an investment program for yourself. The problem is where to begin? There is such a deluge of information that comes out on the internet, on TV, and in the paper everyday you just don’t know where to start. You know this is important, you don’t want to make any mistakes, and you are intimidated by the apparent vast amount of information that must be learned in order to begin investing. You are also concerned that it seems that even the brightest and the best names on Wall Street appear to get it wrong a significant amount of the time. If the experts can’t be successful, how can you?
The first thing to do is take a deep breath. This isn’t rocket science, and there are ways to effectively manage your money without getting a doctorate in economics from Harvard. The very first step is to define your goals. What specifically is it that you want to do? Are you looking to build up a nest egg over a period of time? Are you near retirement and need to develop an income stream to supplement social security benefits? Identifying your goals will be of tremendous assistance in establishing your investment plan. Next it is important to determine how much risk you want to take. Only you can determine this, but there is a good way of figuring it out called “the sleep test.” Whatever you invest in, you should be comfortable enough with your choices that you are able to sleep well at night and not lie awake worrying about them. The next step is to decide if you want to spend time managing your funds yourself, utilize the services of an investment manager, or if you want to select mutual funds to place your money in, and let the fund manager make the decisions as to when to buy and sell.
If you determine that you want to manage your money yourself you then will want to decide whether or not to use a full service broker, who will provide advice as requested, or an online broker. The primary differences are in cost and availability of information. Full service brokers will charge up to 20 times what an online broker charges. Most online brokers do provide extensive information regarding stocks, but you generally have to go to their website and dig it out yourself, while a full service broker will be happy to do the research for you, but of course you are paying for that service. If you choose the mutual fund route, there are mutual funds designed to meet just about any investment objective that you might come up with whether it is long term growth, current income, or a balance between the two. There are sector funds specializing in just about any category that you might be interested in, and there are funds that provide every level of risk/reward to meet just about any specific investment criteria. There are some funds which have no sales charge (no-load) and others that are generally sold by brokers that do have a sales charge. Google is a great source for finding funds which meet your investment criteria. Simply type into the search box whatever type of fund you are looking for such as “high yield mutual funds” or “growth mutual funds” and a world of information will be at your fingertips.
If you are more adventuresome and have determined that you want to manage your own investments, and choose to go the online broker route, you will want to research stock candidates prior to buying. Again, the internet is a wonderful source for easily finding information. Yahoo Finance, Google Finance, and MSN Money are only the tip of the iceberg in the plethora of internet sites available to research individual stocks. So, what are the types of things to look for? If you are looking to develop an income from dividends, when looking at a stock, you will not only want to look at the current yield, but you need to determine if the dividend has been consistent and what its growth has been. If you are looking for a growth stock you will want to determine how the stock has done in good economic times and bad. You will want to look at a company’s price earnings ratio (PE) to see how it compares with other companies in its sector. You will want to look at a chart to see whether the trend is up or down, and to see where it is in its business cycle. Information regarding profit, growth, and yield trends, as well as price per share trend, is readily available at the previously mentioned websites. Company information is available in corporate annual reports, and even more detailed information is published by every publicly traded company in their quarterly reports, called 10Ks. Additionally, every time a publicly traded corporation does something or has something happen to them that can materially impact their stock, they are obligated to report it, and this information is picked up by any one of the many financial news services.
Perhaps one of the most important criteria in determining which stock to buy is the easiest one to master. That is don’t buy anything that you don’t understand. The Campbell Soup Company, or McDonald’s are examples of companies that everyone can understand. While a mortgage real estate investment trust (MREIT) or a master limited partnership (MLP) should be the realm of more sophisticated investors. If, after reading the company profile (available from every company website), you still don’t “get” how the company makes its money, then that is a stock for you to stay away from.
Once you have established your investment goals, determined your tolerance for risk, and created your investment portfolio your work is not over. It is important to regularly look at your investments to see if the choices you have made continue to meet your objectives. If one stock has grown to where it represents too much of your investment portfolio you may want to sell a portion of it and buy something else to maintain diversity. If something unexpected happened, and one of your selections is not meeting your expectations, you will want to sell it before even more money is lost, and buy another stock that will be more likely to achieve your goals. This isn’t complex, but it does require regular attention. Whether you review your investments daily, weekly, monthly or quarterly is up to you and how involved you choose to be in managing your portfolio.
If you have chosen to use an investment advisor, a full service stock broker, or mutual fund manager to make your investments for you, be sure that the investments that they select are within your tolerance for risk and meet your investment criteria. It is equally important to be sure that your money manager or mutual fund are regularly reviewing your positions to insure that they continue to meet your goals After all no matter whether you are managing your portfolio, or an investment manager is doing it for you, it is important to remember that no one cares more about your money than you do!