The stock market is a fundamental part of the American experience: an arena where anyone, theoretically, can make it big with the right choices and a little luck. It is part of the success story narrative that informs our economy, and it can feel awfully tempting to dive in headfirst. Before you do, though, it’s important that you assess your situation realistically.
There are several basic questions you have to ask yourself when considering investing in the stock market. First and foremost, can you afford to lose money? Financial loss is a very real possibility when investing, and if your budget can’t bear it than you should seriously consider avoiding investment until your situation is stable.
Another question is, simply: are you a patient person? Can you wait the years it might take for your investment to mature? Be honest in your self-evaluation. You don’t want to constantly jostle your portfolio and compromise its integrity.
Starting off with low-risk funds and indexes is a safe way to start learning the ins and outs of stock market trading. Investing in a hundred or two hundred companies is manifestly more secure than investing in one, so for new investors this is typically an advisable avenue.
Guaranteed Equity Bonds, or GEBs, and investment trusts are two more relatively safe options. A GEB is a stock index option with a set duration and a guaranteed return. They produce a modest amount of income in exchange for ironclad dependability. An investment trust is a more complex arrangement of multiple-index investment but retains the essential form of a fund.
Taxation and tax rates should be a prime concern for any investor. Remember that protecting your investment within the blanket of your individual savings account allowance means you’ll benefit from government tax relief. Capital Gains will also be alleviated. Basic knowledge of tax law and conservative initial investing choices are the cornerstones of a safe entry into stock market trading.
Assessing the risk levels of various funds and then distributing your investment capital for an optimized cross-section of risk management and reward is the traditional follow-up for investors who’ve mastered the market’s basics.
Staying with funds and other low-risk investment opportunities means radical shifts are unlikely, but the higher degree of market analysis required for multiple safe and profitable picks makes this a game for adepts and talented novices, not for rookies.
Selecting funds by examining past performance or fund-of-the-week current performance is a risky proposition. With the emergent markets in rapidly hyper-industrializing places like China and India there are a variety of high-risk, high-reward opportunities for reckless investors while assessing market performance for older funds is a tricky business best conducted by professional analysts.
Stability should always be the priority for anyone hoping to grow their initial investment organically into a more significant body of capital. Toward this end funds, and fund indices (a sort of fund of funds that distributes an investment even more broadly) are really the most reliable investments to be had.
Another solid path for beginners is to follow a tracker, a program that closely details the developments of larger indices. Investors have a strong degree of direct participation in the fortunes of these companies and can react nearly in real time to emerging events. The disadvantage of these tracker funds is their passivity.
Instead of selecting the most profitable and likely stocks the follower simply tracks the index as a non-dynamic information gatherer.
Before investing any sum, but especially a sum financially significant as compared to your overall fiscal situation, you should without question consult a professional. A financial adviser or analyst can help you to select appropriate options for investing and, more importantly, to steer you away from dangerous investments.
The internet is an excellent source of investing information, and there’s no shortage of journals and articles dispensing advice relevant to practically any area of investing and trading. Even (especially, I’d say) if you’re just finding your feet as an investor you’ll want to be as well-informed as you practically can be.
Understanding broad market trends and the performance of the funds and stocks that constitute your area(s) of interest means you’re that much more likely to succeed as a marketeer.
Consider, too, the type of investment you make. Are you interested in an incremental drip investment or a lump sum? Do you want to regularly shift the contents of your account to free up liquid resources or do you want a stable, long-term body of investment? (GEBs do not allow for drip investment). With a drip investment you circumvent the need for a large initial investment, and you’ll avoid price spikes and valleys alike.