The phrase “stock market” conjures up images for some of a packed trading floor and excitement. Others immediately remember stories of investors who lost fortunes and want nothing to do with stocks. Luckily, owning stocks doesn’t have to be either of these options if you don’t wish them to be. Stocks have proven to be a good option for long-term investors looking to create a portfolio that can outpace inflation. Although beginning your stock portfolio may seem like a huge undertaking, there are only a few basics you’ll need to know before you make your first purchase.
Write out your goals in concise, actionable and realistic terms. The National Endowment for Financial Education recommends that anyone beginning any investment program writes out their goals in a way that will help you weed out thousands of investments that don’t fit your objectives. The clearer your goal is, the more likely you’ll be to chase it once the newness of owning stocks has worn off.
List companies you’re familiar with. Financial guru Peter Lynch made a fortune with the philosophy “buy what you know.” Although he didn’t buy stock in every company he followed, making a list of companies gives you a good starting point to begin examining which are the best fit for your portfolio.
Research the companies on your watch list. Use websites such as Yahoo! Finance and E-Trade Clearstation to examine the fundamentals of a company. Review the company’s revenues to determine which have consistently increased sales. Focus on company’s earnings to see if the firm has consistently made a profit. Read news about new products and management changes. Look at a stock chart to see recent price trends of the stock. All of these will increase your knowledge of a company and help you decide which is best for your investment dollars.
Open a brokerage account. If you enjoy research and picking on your own, look toward discount and online brokerages that charge lower fees. People who don’t like the thought of making stock picks alone might be better served with a full-service brokerage house. Although you’ll pay more, you’ll be paired with a professional who has licenses and training in helping people make investment decisions. Before settling on a broker, check his record at the Financial Industry Regulatory Authority BrokerCheck website.
Fund your account and place your first trade. Once dollars are in your account, decide whether to place a market or limit order. Market orders purchase the stock immediately, making sure you secure the shares. Limit orders don’t execute until a pre-determined price target is met. This may help you avoid overpaying for a stock, but if the stock price never lowers to your target, you won’t own the stock.
Track your stocks. Continue to use online sites to follow the stocks you own and those on your watch list. Continually update your watch list to include new companies to track and eliminate firms that aren’t meeting your investment goals. Watch stock prices, follow news and evaluate each earnings report in your search for profitable investment choices.
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