For years I wanted to jump into the stock market and for years I have seen the stock maker skyrocket and tumble into the depths of the abyss like it did in 2008. When watching the ups and downs it can be scary to think that this is where I want to put my money. Well I know that I wouldn’t want to jump in with both feet without first learning where to start. How to start buying and selling stocks.
To get a drivers license you first need to learn the rules of the road before you get behind the wheel. The same goes for the stock market so I brought together a team of information to give me a well rounded education. I started to watch television personalities as they went on and on about the days news. I learned about why the stock market has ups and downs which is great to know but with out knowing the lingo I could not catch on to what they saying when it came to individual stocks. To help put it together I hit the internet and read some articles and as I read them I looked up definitions on Investopedia.com. Finally the light started to shine but I felt I was missing something. I started to listen to the podcast, The Winning Investor with Andrew Horowitz. Everyone that is new to the stock market should download all of these podcasts from the very beginning and listen to them multiple times. There are plenty of more sources so the bottom line is the more you know the better off you will be.
Where to start
First off you need money to invest. Just like you never go to Vegas and gamble with your rent money, you never invest into stocks with money you cant afford to lose. Once you have obtained funds to put into the market you need to know how to buy a stock. You can go through a broker which is great if you like the one on one interaction with someone that works with stocks every day. You can even go directly to some companies and buy their stock. What I did was use the internet and used Sharebuilder.com to act as my broker. Sharebuilder is just one of many sites you can use so look at the different sites and choose the best one for you. Just keep in mind that when using a broker or a website you will pay fees whenever you buy stocks.
Start off slow
I started with a budget of $100 per month. Because you pay per trade I would suggest buying more stocks in one or two companies instead or a few stocks in many different companies until you have more money to spend. Don’t try to get rich over night because you wont but think your plans through and in the long run your hard work and dedication will pay off.
Play it safe
So like me your new to the stock market and want to play it safe. You want to build a portfolio with a wide range of investments but the one everyone should have is a long term retirement fund. You can buy stocks in an exchange-traded fund (ETF), which is a stable low risk investment or mutual funds which take more of a risk. I went with the ETF stock QQQQ because it follows NASDAQ 100 and you don’t pay the same fees that you would with a mutual fund. There are many ETF’s so pick the one that best suits you. Once you are buying that retirement stock(s) you can then put it into a Roth IRA. With a Roth IRA you can put up to $5000 a year and the money wont be taxed until you take it out at age 59 ½ unlike other retirement accounts where you will be taxed per year on the money you make and then again when it matures.
You are now buying stocks for the future but what about making money now? Playing the stock market is a gamble but doing your homework will increase your odds. Figure out what sector you want to buy stocks in like, energy, medical or any other field you think will rise. Then you want to start looking at companies you feel will do good in the coming years and compare them to each other. This is where the education and homework part comes in to play. Learning to read charts and graphs and knowing what things like P/E ratios and profit margins really mean to a companies future. Remember to only compare companies in the same industry.
The long road to making money
Take your time and be patient with your stocks. If your like me you don’t have a lot of money to throw into stocks so picking long term stocks with a upside will get you started the right way. If you start buying and selling your stocks at the first gain or loss then you will never make big in the stock market. Edwin Lefevre said ” let your winners run and cut your losses short” and besides that you will pay less taxes if you hold your stocks for over a year. As you buy and sell stocks you will gain vast knowledge and always remember then even if you pick a stock that looses money you will learn why you lost with that stock and hopefully you wont make the same mistake twice.