The stock market is an exciting arena, yet a dangerous one for even the most careful investor. We all realize that anytime you decide to invest money in stocks, there is the risk for losing everything. However, putting money into a certificate of deposit that gets a mere 5% rate of return each year really isn't the answer for making money grow, especially if the inflation rate is 3 or 4%. So, you're considering making an investment in the stock market and taking the risk. This article will help you explore how to most wisely invest in stocks for the first time.
How to Get Started
Determine how much money you have available to invest in the stock market. Your first investment could be small, so that you can get a feel for things and see how the market works.
Decide whether you will use a financial advisor or invest on your own.
Ask a financial adviser to set up a brokerage account for you. The adviser generally makes a set amount of money or percentage each time you buy or sell a stock, but will provide you advice on what you are doing, which makes the fees worthwhile. This is a good way to go if you don't really know much about the stock market.
Set up an an online account that allows you to buy and sell stocks. A great one is Scottrade, listed in the resource section. It is easy to set up an account. You pay a low set fee of about $7 each time you buy or sell stock, and there is no minimum level of activity required.
Make a deposit into your online investment account, and wait for the funds to become available for your stock purchase.
How to Decide on a Stock
Decide on a stock to invest in. This is the hardest part. For a short term stock market investment that you will sell in less than a year, choose a stock that is about to grow quickly. A company about to make its initial public offering onto the New York Stock Exchange (an IPO) can be a good bet, as the stock value tends to rise right when the company is listed on the exchange. Just make sure to get in right away, and sell the stock a few days later after the price goes up.
Do your homework. Look at what is going on in the market. A second stock to grow quickly is one that is about to merge with another company. XM Satellite Radio and Sirius stocks both took a leap with news of the merger between the two companies.
Find a company about to do a stock split. The stock values tend to rise after the stocks have been divided, so you have to purchase the stock in time to get in on the split, and then sell after the stock rises in the weeks or months to come. Apple did a stock split about five years ago, and within a year the stock was already worth about 40% more than it had been after the split. Anyone who invested right before the split was able to make some good money over that year!
Find more of a value stock, one that pays dividends each year and is a long-term growth oriented company. It will take longer for you to make money with this type of stock investment, but there can be less risk involved.
Do some research to find out a good long term stock choice that pays good dividends.
How to Buy and Sell the Stock
Enter your online financial account that has funds available.
Go to the page for trading on the account.
Select the option to buy stock, and enter the number of shares you wish to purchase, the symbol for the stock, and the order type which will be 'market.' Enter the information and then purchase the stock.
To sell the stock, you do the same thing, except you put in the option to sell stock with all of the other information in Step 3.
Have a safeguard in place so that you don't end up having a stock that loses a significant portion of its value and thus most of your investment. To do this, you can put a sell stop order on the stock you have purchased.
A sell stop order is an order to sell a stock when it goes below a certain price. When the stock goes below the price, this becomes a market order and your stock will be sold. If you don't want to lose more than 20 percent of your investment, you can put in a sell stop order for a price 20% below the price you pay for the stock.
To place a sell stop order, on the trading page of your online account, choose the sell stock option, the amount of shares, the symbol, the type being stop order, and the stop price (at say 20% less than what you paid for to buy the stock). Whatever stop price you put in, the order to sell the stock will be triggered when the stock value drops below that price (which could be more than 20% if the stock price drops with a large gap from one price to the next).
For your first investments in the stock market, it is a good idea to have a financial adviser. This will help you make better choices initially and avoid some of the pitfalls that an inexperienced investor would make. If you would like to invest on your own, spend time researching the market first to get a sense of understanding of the rise and fall of stocks.
Don't invest money in the stock market that you can't afford to lose. Nothing is a guarantee, and a company that looks like the next multi-billion dollar enterprise could be the one that goes bankrupt tomorrow.