If you are a new investor who is interested in buying and selling stocks, it can be hard to know where to begin. Between industry jargon (intentionally confusing, by the way), and an endless stream of options for investing there is a lot of information out there, without a lot of direction.
The following questions should serve as a guide to how to invest in individual stocks and aid you in your quest for quality investments. Carefully examine your investment objectives, your risk tolerance, and your available capital before making any investment decisions.
Your Investment Objectives Tell You How To Invest In Individual Stocks
Your objectives are crucial when planning an investment strategy, as each person’s individual goals will dictate what is the best course of action for them. While an account that it strictly for a new car or dream vacation could contain high risk, more volatile stocks, the same can not be said for someone’s retirement fund.
Your style will also affect your stock picking. If you have a high tolerance for risk and can tolerate a loss of principle, more volatile penny stocks may interest you more than a boring old blue chips. If boring is just fine by you when it comes to your money, a tried-and-true blue chip corporation would be more your style. Because they are stocks, after all, you can enjoy the thrill of price movement, without the fear of losing it all.
Your style will affect the type of broker you use as well. If you are an independent investor who wants a no-frills brokerage, and rock bottom fees, then a discount brokerage would do just fine. As long as you have access to adequate research and are familiar with the basics of investing, these firms would be more than sufficient for your needs.
If you are unsure of yourself, have a complex investment objective, or are dealing in very large sums of money, you may feel that it is best to hire a full-service broker to handle every step of the investment process. These money managers bring education and experience to the table, as well as higher fees. Carefully review each broker’s investment prospectus to find out if the funds style compliments yours.
How To Invest In Individual Stocks Using The Power Of Risk
Some people are risky investors by nature. The never seem to lose their cool, even in the face of astounding swings in the market. Volatility is their friend and they never grow tired of the day-to-day excitement of the market. These investors are well suited for growth investing; chasing performance and hoping to sell at the top.
And still other are more cautious, and the thought of watching the arrows in their portfolios fluctuate between red and green induce illness rather than excitement. These investors are value investors who buy undervalued, well-run companies at a good price and hold on for ten or more years.
Risk can be a powerful motivator (or de-motivator as the case may be) in an investors arsenal. The key is to be honest with yourself about your true tolerance for risk. You would be unhappy either way: if you are a more risk-tolerant investor, a portfolio full of vanilla index funds would bore you and fall to ruin from neglect (even a portfolio comprised of ETFs needs tending to). If you are a conservative investor, a wild encounter with market volatility could sour you on investing forever. It literally pays in real money to be truthful with yourself bout risk in your portfolio.
How To Invest In Individual Stocks Using Available Capitol
Once you have analyzed what your investment objectives are, and the amount of risk you are willing to assume, you can begin to think about how much available capitol you have to work with. Setting a strict budget and sticking to it are crucial to saving and investing.
First and foremost is that you must set aside a portion of your budget for emergencies. Unexpected layoffs or disabilities happen every day, and if they happen to you you need to be prepared. Only invest money that you will not need for at least ten years.
Second is to funnel the money to your brokerage account immediately. The faster it is gone, the less likely it will get spent. For many people, the truth about money really is out-of-sight-out-of-mind.
And finally, always use limit orders to buy stocks to ensure you are getting the price you want. Market orders could result in you paying a higher price-per-share than you would like.
And, as always, never take anyone’s word for it (not even my mine). Take the time to research every potential investment, review existing positions periodically, and stay on top of industry news and events.