Investing Basics

You’ve saved some money and you want to invest it in the stock market. You’ll first need to understand some stock market investing basics.

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1) You can use it to create an income to live on (great for those with no job such as the unemployed and retired), or you can use it to grow your money for some future expense such as your child’s college, your dream home, or even for your retirement.

2) Whichever way you choose to invest you’ll need a basic understanding of how stock market investing works. If that company does well so do you (and vice versa). When you buy a share you become a shareholder and are entitled to share in the profits (through dividends if the company pays them) and attend shareholder meetings where you can vote on company matters and be heard.

However, I doubt you want to become an investor in the stock market for those things. This certainly can be done and the stock market offers many ways, which brings us to rule 3 of our stock market investing basics.

3) When it comes to investing, you can invest in stock through a mutual fund, by yourself, or through the aid of a broker. No one will take care of your money as well as you will. Mutual Funds rarely beat the markets because of rules placed on them. The only one you can count on is you, so learn to become a great investor.

4) This now brings us to rule 4 of my stock market investing basics, how do you know when you are a good investor? You use a benchmark, that’s how. These are indexes whose prices are based upon the stocks they track. If those 500 stocks go up on average, the S&P 500 index goes up.

What that means is that your investing return should be greater than the return of the major indexes. It is in this way you can tell if you, are someone else, is a great investor. Don’t believe he is a great investor. While it may sound good, if the markets went up 80% that year, this guy did horrible and underperformed the market.

5) Risk vs. Reward. Every investment offers risk, the more risk you take, the more return you should get.
How much risk do you want to take? Risk comes in many sizes. However, a penny stock could easily rise 100%, 300%, or more.

For example if in one year Microsoft loses 50%, Wal-Mart goes up 10%, and Apple loses 10%, by investing in only Microsoft you lose 50%. However if you diversify and buy all three, your loss for the year is now only about 17%. As an investor you goal should be to first determine the risk you are willing to take and invest accordingly.

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Protect your retirement account. Don’t forget to learn about mutual funds in retirement plans for 401k Plan advice, 401k asset allocation, 401k investment advice and a 401k investment strategy. It is important to your retirement account to be educated about 401k allocation and a 401k strategy