There has never been a better time to invest in the stock market. With the advent of online trading, and the ease of internet research, it has never been easier to make an informed investment decision or execute a trade.
While investing in the stock market is considerably more volatile than CDs or traditional bank savings accounts, there has historically never been a better path to lasting wealth, as stocks have consistently outperformed most other asset classes over the long-term.
The explanation for this is simply that when you take on more risk there are more potential rewards. You can, however, reduce your risk level and increase your gains by picking your investments wisely, and keeping commissions and other expenses to a minimum.
Choosing A Brokerage
Whether you are taking your first steps into the market, or you want to reduce your costs on existing investments, you need to choose the broker that is right for you. There are many options available, but the key is to find a stockbroker that fits within your needs and objectives, that also fits into your investing budget.
A full service broker can guide you step-by-step through the investing process. They provide you with years of education and experience, and possibly, large returns. These services come at a price, with some brokers charging up to 2%. Keep in mind that commissions and fees should be factored into your total investment budget.
An online brokerage can be a more affordable option, with some offering trades for as low as $4. These sites also offer research tools and stock screeners, so it pays to shop around for the best features and rates.
Choosing Stocks For Your Portfolio
The next step in investing is deciding where to put your capital. What you chose to invest in will depend on a number of factors including your age and investment objectives, your available capital, your ability to tolerate risk, and amount of time you expect to spend in the market.
A style that works well for many investors is the buy-and-hold strategy. This method consists of purchasing high-quality stocks at attractive valuations, reinvesting your dividends, and holding the position for a long time. When you utilize this strategy of buy-and-hold investing, you have history on your side and can effectively dodge short-term volatility.
A portfolio appropriated for retirement should contain an age appropriate mix of stocks and bonds, to both build wealth and preserve it for the future. When you are younger, and can tolerate more risk, you can allocate as much as 100% to equities, having a longer stretch of earnings ahead of you to compensate for short-term volatility.
As you get older, and the need for your capital gets closer, shifting your allocations to lean more heavily toward bonds, and other fixed-income investments is the best course of action for wealth preservation.
Whether you goal is quick, short-term gains, or a stable source of income for the future, you need to carefully research every potential investment to assess whether it is right for you and fits within your risk tolerance levels.
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