Investing 101

You’ve decided that investing is a way for you to accumulate. So, how do you invest in the stock market?
Investing money in the stock market requires you to put your money in a security. A security is secured by other assets such as stocks, bonds, mutual funds or certificates of deposit.

Steps to getting the funds:

Step 1: Pay off your high-interest debt.

Step 2: Set aside money to save or invest when you get your paycheck.

Step 3: Set a goal to save 10% of your annual net income; this money can be used for investing. With online banking or brokerage services, you can easily set up an automatic transfer between your accounts.

There are typically two strategies when it comes to investing:

  • Active investing, where investors select their own stocks and other investments.
  • Passive investing, where investors allow their holdings to be adjusted by a third party index.

When people discuss investing in stock, they are talking about active investing. If you compare active investing to utilizing an investment index like the S&P 500, the index has proven to outperform actively managed stocks. While active investing is more dangerous, when an active investor uses a full service research firm like Small Cap Resource their chances of picking a winner are greatly increased.

When it comes to investing, it is important to set a goal and move toward it. Think about it like driving cross country: if your goal is to get to the other side, you shouldn’t stop in the middle. Before you start investing, ask yourself these questions:

  • What are my goals?
  • What is my time frame (exit strategy)?
  • What types of investments are you interested in?
  • How much money do you want to make to reach your goal?
  • How much do you want to regularly invest?
  • Do you want to make long-term investments or short ones?
  • How long do you want to invest?

Do not allow yourself to be overwhelmed by these questions; sit and think it through and start to create a plan. A full service research firm like Small Cap Resource can help you create a short- and long-term investing plan with entry and exit strategies. An account executive is just a phone call away 516-858-1115.

So, now that you have a plan; how do you trade? Stocks trade on exchanges. In the U.S. there are several. The New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the Nasdaq Stock Market are the major players. While there are some difference in the way you trade among the various exchanges, the actual process of buying and selling stock is similar.

Exchanges allow traders to buy and sell the stocks in their exchange. Buyers set a price they are willing to pay for the number of shares they would like to purchase. This is called a bid. Sellers set a price they are willing to accept for the shares they are selling, and this is called the ask. The amount that separates the ask from the bid is called the spread. The spread changes as the shares are traded.

Most investors use a brokerage account to buy stocks. For more information about choosing the right broker and a full list of online brokerage firms, click here.

Scavenger Hunt Question 4: We compiled a list of useful stock market terms. Find it and you’ll find your next answers. Give us the exact definition we list for Risk Management. (Enter this answer in the answer 4 field on the entry form).