4 Things to Know for Stock Market Beginners

Stock Market Chaos for Beginners

The stock market can be a chaotic world to enter, but preparation and planning can make a big difference.

The stock market can be an enticing, yet intimidating way to invest money. Playing the market often rewards preparation and patience. Some stock options may be better than others in suiting the military lifestyle, so be sure to explore.

Here are a few starting places:

Are Stocks the Right Investment?

Stocks aren’t the only way to invest money and may be too risky for small savings. If your expenses exceed how much you expect to earn in the market, it’s better to put your money toward your debt, savings, CDs or bonds.

Which Area to Invest

There are a few ways to approach investment in stocks. Mutual funds, preferred stock and common stock each have advantages and shortcomings for an investor to gauge.

  • Mutual Funds: Many beginners start with mutual funds managed by professionals. Rather than put money into one stock, a mutual fund creates a diversified portfolio. Mutual funds can also invest in other areas like bonds, property and market funds. A downside to mutual funds is that investors must pay fees to have their money managed and don’t have the ability to influence decisions on money placement.
  • Individual Stocks: Choosing individual stocks on your own can be much riskier than a mutual fund. Without proper research, you can lose your investment quickly. Two general differences in stock are whether they are considered common or preferred.
  • Common stock: This represents ownership in a company. Those with common stock can elect a board of directors as well as vote on company policy. In the event of liquidation common stockholders only receive their portion of the assets after bondholders, preferred shareholders and other debt have been completely paid.
  • Preferred stock: These stockholders do not typically have voting rights but get paid dividends prior to common stockholders.

Research Resources

Before investing, look into a few documents about the company. The 10K is filed with the Securities and Exchange Commission (SEC) and has plenty of information on the company. The 10Q is a smaller version filed quarterly. A proxy statement will provide information on the board of directors, management pay and shareholder proposals. The annual reports are also a great place to look.

Investment Tips

After you search through investment sites, such as InvestorGuide.com and MarketWatch.com, you can start to choose your mutual fund or stocks.  In doing so, create a plan by considering the following things:

  • You cannot simply choose a broker to open an account with. Some require minimum deposits near $1,000. You can either look up brokers or utilize online sites such as E-Trade.
  • Choose to invest in companies that you understand. Not knowing the specific purpose of a company can put you at a disadvantage.
  • The safest route to potential profits is committing to a long-term investment. You can look at the past performance of the stock and use trends to predict the potential of a stock over a period of time. By using a day-to-day approach to stock, an investor is actually gambling more than investing.
  • Create a plan for regular investment. Some choose to invest more money every month or every quarter year. Called “dollar cost averaging,” the goal is to make more money buying stocks when they’re high or low than a person that times the market.

Photo Courtesy of Ahmad Nawawi