Making money in the stock market is not as hard as it seems. Yet it is not a walk in the park. Taking a Walk Down Wall Street could benefit your current income and most importantly assure you a more comfortable and independent retirement. The necessity to invest in stocks has become ever more important as social security disappears, bonds barely beat inflation as well as CD’s and bank accounts lose purchasing power. Investing in stocks may be your best option.
New stock investors are often deterred because they feel that they are not qualified or that it takes too much work. However with the internet resources available, the 21st century is the perfect time to invest in stocks. With all of the investing websites offering financial information as well as prospects for the company based on their products, services, management, competition, etc. it is a lot easier to invest in the best companies than it has ever been. The most interactive resource to teach you how to make money in and assess stocks are websites like Fool.com and Trefis.com.
The next step in how to make money in stocks lies in setting your goals. Do you want to be a day trader or penny stock investor? Do you want to try to make more money each day by constantly buying and selling? How about buying dividend blue chip stocks that pay dividends over time? As with all investments, the higher the risk the higher potential reward. You have to be ready to potentially lose the money you are willing to invest in stocks.
Once you have determined whether you want to go long term or short term you will then decide your first investments. Ask yourself, what is my budget? Then assess your asset allocation using this tool. This gives you an idea how much money you should allocate to each type of stock as well as other types of investments. It is often confused with diversification which is the diversity of stocks you own based on sector and market capitalization. If you have less than $500 consider investing in just a couple of stocks you really like, that you use everyday like Pepsi or Apple. Better yet, invest in a company with stronger growth prospects such as Google or Starbucks.
Find an online discount broker that you particularly feel comfortable with based on the ease of their website, prices for trades that is the cost for buying shares for you, and features. My personal favorite is TradeKing. ScottTrade, TD AmeriTrade, and ING Sharebuilder are also popular and each fits individual needs.
You will be asked to provide tax information and a SSN, make sure you list a US address or you are often out of luck. They need this information for taxes. You will not be taxed on what you buy or profits you make, only when you sell to physically receive your money and receive dividends. Some accounts like 401(k) designed for retirement are tax free.
Follow the stock you like for a couple of weeks and when you are comfortable with the price, initiate the trade. Oftentimes buying on a certain day or time of day could save penny’s or several dollars a share which in the long run means way more profits. Keep an eye on what you paid per share but do not obsess over frequent fluctuations in price as this is common for most stocks – good and bad.
Finally the number one mistake you can make is always selling when you begin making money and hanging on to your losers desperate for them to return to the prices you bought them at. Many stocks will go up and if it is sweet enough, cash in and take the profits. Likewise if a stock is continually dropping and prospects no longer appear healthy, take a loss and sell it. You cannot afford to get too emotional over stocks. They are just pieces of paper and nothing more.