Take a seat
The stock market can be a confusing place for a newbie. While it’s true that you learn as you go along, you need to come into trading having some basic knowledge of how the market runs and how to play it. At the very least, you should be able to define some common terms so that your investment portfolio manager doesn’t have to speak in a certain way to you…if you get what I mean.
So this is a simple guide into first time investing with all the fancy terminology and great tips. You certainly won’t become a billionaire by sticking to this simple guide but you certainly won’t lose your hard-earned money, and that’s a pretty good deal, right?
Basic terminology
Stocks and funds are not the same thing. A stock is a share in a company that you can buy, hold and sell in the market or privately. A mutual fund consist individual investors buying into different companies together. It is managed by a team of professionals.
If you don’t want to manage your investment, then a mutual fund may be the way to go but then you could also hire a certified financial planner to manage your individual stocks, at a cost of course.
Trading and investing are also slightly different terms. Trading refers to the actual and frequent buying and selling of stocks or funds. Investing, on the other hand, has to do with a long-term approach so the movement of stocks or funds is not as frequent.
Have a plan
No one has money to waste in stocks so you need to have a clear plan going in. You need a CEO and a CFO for the planning and budgeting respectively. This doesn’t mean you should hire people. The point here is to emphasize the need for a vision and a plan as well as a budget and more importantly a reserve fund, in cash, to take care of any emergencies. The reserve fund will help you not have to sell the investment before time, or worse, get into more debt.
Get the capital
Part of plan is to know what you are going to invest i.e. where the cash is coming from. Saving may take too long to make the kind of investment you are thinking about so consider using your 401(K). Most employers have it and it’s pretty easy to have it as your investment capital. Some companies even have ‘classes’ over lunch explaining how it works and would even match your investment dollar for dollar. If you start early, you could have the retirement of your dreams!
Set up a brokerage account
You will need to get a brokerage account with a credible, licensed firm that will conduct your trading and manage your account for you. This is not for free of course, so you will be funding this account. The money will be in the cash portion of the account and used to settle orders. Stocks bought and commissions are debited from this cash, while stocks sold, interest and dividends are credit here as well (which you can withdraw).
Now you’re ready to start the business of buying and selling; and that’s a whole other class. Good luck!
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