Finance 201: Learning to Invest Your Money

You may be familiar with the stock market and be fully on board with the exponential growth of money – but you’re not sure how to get started. There’s nothing to it but to do it. I remember the first trade I ever did, it was for work. It wasn’t my own money. But I had done with other people’s money so much when it came time to do it for myself I was pretty comfortable with it. There are two things to tackle when you’re ready to start investing in the stock market. The first is the “how”. The second is the fear of losing money.

Let’s address the fear first because this is what stops people from getting to the “how”. If you have a 401k congratulations, you are already investing your money. Granted, someone else may be doing it for you, but you have agreed to the basic premise of investing. If you don’t have a 401k (or other retirement account) or you are not participating in your company’s 401k program, that is a great place to start to get comfortable. If you don’t know what a 401k or Roth IRA is, stay tuned. We’ll get to that. One way to address the fear is to start paying attention to the news. Watch news casts that are specific to investing. Read the Wall Street Journal or other financial newspaper or magazine. This will help you learn the terminology and give you an understanding of how the markets work. We fear what we don’t understand. Try some mock trading. We did this in high school. Get a notebook. Give yourself a fake amount of money, $5000 or $50,000. The amount doesn’t matter. Follow the stock performance of three or four companies. Decide when you will buy and when you will sell. Record your profit or loss. Do this for about a month and you will find that your are starting to recite the terminology and understanding the basics.

What if you understand the basics, but you’re still nervous about it, you don’t want to lose your shirt. Buying into the stock market is like any other bet, don’t bet more than you’re willing to lose. In your budget if you have $300 or $3,000 you won’t miss, that is your starting amount. And by “miss” I mean you won’t default on a loan or be strapped to pay bills. Once you’ve mentally parted with that money you will find the fear may decrease.

Moving on to the how. If you’re ready to trade, the next step is open up a brokerage account. There are so many out there, you can’t go wrong. I use Scottrade. Even if they are online brokers you can always call in for help. They also provide resources to help you in making buying/selling decisions. You want to make sure they are FDIC insured. An important factor in your choice will be the trade execution fee. If you plan on doing many small trades you don’t want to pay $20 per trade. There are some that are as low as $3 per trade. You will want to deposit all of the money you’ve set aside for trading so that it’s already “gone from your life”. Decide on what stock you want to buy, then go for it. There are different order types. Be sure to read the explanations that will be provided to you on market trades versus stop trades versus at a price trade. Very simple to understand, keep the explanations handy.

There is no sure-fire guaranteed way to make money in the stock market. Don’t let anyone tell you different. Past performance is not an indication of future performance when it comes to stocks. You will eventually figure out a strategy that works for you. Some people hold on to stocks for years while others are short timers. There is no right or wrong answer. The truth lies somewhere in the middle, diversification is key. Knowing an industry is also key. There is a whole world of trading vehicles out there, stocks are a great way to get your feet wet.

I’m just keeping it new.

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