So you decide to invest in the stock market. A: congratulations! Historically, stocks have outperformed long-term investments in bonds, Treasury bonds, gold or cash. In the short term, one or several other assets may outperform the stock market, but overall, stocks have always been the winning path.
But there are many ways to invest in stocks. How do you decide what works for you in individual stocks, mutual funds, index funds, etfs, domestic or foreign stocks? This article will address some of the issues that you may need to consider as new (or not-so-new) investors, so that you can relax more easily and allow your money to grow.
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Risk takers, risk aversion or intermediaries?
You may be anxious to get started, so you can get all the fabulous returns you hear. But slow down and spend some time thinking about simple questions. Now the time to think about the following things will save you money.
What kind of person are you? Are you an adventurer who is willing to make a lot of money, or do you prefer something more “certain”?
Could you respond to a single stock drop by 10% or 35% within a few weeks? Would you panic?
The answers to these and similar questions will lead you to consider different types of equity investments, such as mutual funds or index funds and individual stocks. If you’re not a risk-taker – and you think it’s uncomfortable, but you still want to invest in stocks – the best option for you might be mutual funds or index funds. This is because they are diverse and contain many different stocks. This reduces risk and does not require a personal inventory study.
How much time and interest do you have?
Should you invest in funds, stocks or both? The answer depends on how much time you want to spend on the job. A careful selection of mutual funds or index funds will allow you to invest your money, leaving the hard work of picking stocks to fund managers. Index funds are simpler because they are up or down, depending on the company they are designed to track.
Individual stock investing is the most time-consuming because it requires you to judge management, earnings, and future prospects. As an investor, you try to distinguish between profitable stocks and financial disasters. You need to know what they do, how they make money, risk, future prospects and so on.
So ask yourself how much time you have invested. Are you willing to spend an hour or two or more reading different companies, or is your life too busy to open up that time? Investing in individual stocks is a skill that, like any other skill, takes time to develop.
Diversify your portfolio.
It is best not to touch only one asset. For example, don’t invest all your money in small biotech companies. Yes, the potential gains can be quite high, but what happens if the food and drug administration starts rejecting a higher proportion of new drugs? Your entire portfolio will be adversely affected.
In real estate, real estate investment trust is a kind of possibility), consumer goods, merchandise, diversification of many different fields such as insurance, rather than as described above focus on one or two or three, the better. Consider diversifying across asset classes, while keeping some of the money in bonds and cash rather than 100% in stocks. It’s up to you to decide how much of these different departments and levels are, but investing more broadly can reduce the risk of losing it at any time.
A beginner’s portfolio.
If you are just getting started, think seriously about how to get the most of the money to invest in several index funds, for example, tracing the market, such as standard & poor’s 500 index) and some can provide the international influence of the index funds. Perhaps adding an example of tracking small companies (such as Russell 2000) will boost your portfolio.
The portfolio of these three will be sufficiently diversified to provide a more stable performance of large companies and to adjust to international companies and small listed companies.
Build portfolios with individual stocks.
If you are investing in individual stocks, 12 to 20 carefully selected portfolios will provide you with plenty of diversification, and there may not be too many companies that need to follow up regularly. However, you need to make sure that you fully understand each company, from its business to risk. If you plan to invest only in stocks, be sure to spread the money to different sectors, such as health care, technology, small-cap stocks and large-cap stocks.
If you don’t have the time or willingness to choose and follow so many stocks, consider investing in a mix of index funds and individual stocks. Another consideration, especially if you start with a limited amount of money, investing 12 to 20 stocks may not work. So spending most of their money on capital will provide more stable returns that they tend to produce. Adding six stocks may have an additional impact on your portfolio.
Investment of time
Once you’ve identified the shape of your portfolio, it’s time to invest. Find a broker you feel satisfied with, whether it’s an online broker, or a local office or both. Call the person if necessary. Then fill in the paperwork, save some money and open an account.
After deciding what to buy, don’t buy immediately – slowly. What if you put all your money before the market downturn? Rushing into the red doesn’t have much impact on your confidence. Plan to spend a few months investing all of your money to minimize market time risk. Finally, remember to set aside time each week to review or track information about your investments.