In my efforts to help those seeking advice about investing - I thought I’d post my email response to a FAQ (frequently asked question), from a friend of mine in regards to her question of “What is the best way to get started with investing in the stock market?”. While it should be understood that one person’s risk preference or investing strategy will differ from the next – this is a good reference point for all …(generally speaking)!
Stacey (name changed for privacy):
I need to be educated more on stocks and bonds! How would you suggest I start investing and how much to start off with?
It depends on how much you’re willing to risk…because it is a considerate amount of risk involved so you want to make sure you’re able to sleep at night. Don’t put your life savings in the stock market – because you can lose it all.
The stock market is like musical chairs…when the music is playing and the good times are rolling, people are making lots of money. But when the music stops, a lot of people lose money! Just like this past recession…you have to know when to get out.
First you’ll need to get setup with a discount broker, such as:
I hear Schwab is the best – but I’ve yet to research them for myself. I currently use Sharebuilder.com (they are very easy to use for setting up your account) and they let you start investing for as little as $4 per stock!
Click below…they are also offering a $50 bonus for signing up!
There are several ways to invest…I tell most people the best way to get started is to invest in index funds that allow you to invest using dollar cost averaging (for example, SPY). Click on this link http://www.google.com/finance?q=spy
This fund is a good passive way to invest your money and watch the stock appreciate as time goes by…
If you are looking to receive income today then buy individual stocks that offer to pay you dividends or you can buy bonds that pay interest.
The difference between dividend paying stocks and bonds paying interest:
IF YOUR COMPANY (INVESTMENT) DOES NOT FAIL
?Bonds are guaranteed to pay you interest
?Stocks are not required to pay you dividends
?Bonds pay less interest because they must pay you
?Stocks pay higher dividends because they are not required to pay you
IF YOUR COMPANY (INVESTMENT) DOES FAIL
? Bondholders are first in line to receive payments or collateral on the failed company.
?Stockholders are last in line to receive payments…if they receive any payments at all.
This is just introductory but should be enough to get you started on your investment journey!
Additional sites for research are Yahoo Finance, Google Finance, Investopedia.com