Owning stock, or "equity" in a company lets you share in its future -- for better or worse. As a stockholder, you participate proportionately in a company's profits, or pratfalls. The tradeoff for accepting stock market risks with your hard-earned cash is long-term gains that outshine all other broad investment categories. Day-to-day, however, the "stock market" (actually many markets worldwide) is a scary place where small investors compete alongside giant institutions. "Wall Street" may be its best-known address, but London, Tokyo and other financial centers play, too.
Information and the right attitude are critical. Investors who "do their homework" have a far greater chance of success. And those who take a long-term view rather than chasing today's hot stock or trend will reap greater rewards.
At its simplest, the road to stock ownership has just two parts: A) What to buy, and; B) How to buy it. But down that road lie many choices and potholes. You'll need to know:
1) Whether you are best suited to buy individual stocks directly, or should consider "mutual funds" which offer smaller investors an easy way to buy shares in a broad basket of stocks managed by pros.
2) Where to find info and recommendations on the thousands of stocks and funds to consider.
3) Whether to make your own investment choices and trades, or pay for advice and services from a full-service broker.
4) Some stock pricing, value and risk-measurement basics, such as price-earnings (P/E) ratios, betas, dividends and yields.
5) The difference between owning stocks inside a tax-sheltered retirement plan -- IRA, SEP, 401(k) -- or in a standard account.
6) Strategies for balancing a portfolio, dollar-cost-averaging and selling.
7) Whether you are financially and emotionally suited to use ultra-high risk strategies such as stock futures, options and day trading that can wipe out 100% of your capital.
Action Steps
The best contacts and resources to help you get it done
Become a more effective lifetime investor
Knowledge is everything in stock investing. (Well, luck helps too.)
I recommend: Better Investing is the largest nonprofit group dedicated to investment education, with over 50 years of service. Annual dues ($79) include online stock and mutual fund analysis tools, data from Standard & Poor's (S&P), a "Getting Started" course, Better Investing Magazine, local chapter support, stock purchase plans and discounts on investor tools. Great way to get stock market savvy on P/E ratios, betas, retirement plans and more.
Youth membership (18 or under) is $39. Excellent
stock investing books and
software packages.
Investools is another helpful investor education site, offering a variety of stock investor courses, workshops, trading tools and more.
Plug into the stock investing info stream
Stock information -- including research and buy/sell recommendations geared to individual investors -- is available from many sources, including websites, TV, newsletters and magazines.
I recommend: For beginning investors,
Money (including CNN-Money),
Smart Money and
Kiplinger's Personal Finance are great choices.
Barron's (owned by The Wall Street Journal) writes to a more sophisticated investment crowd with excellent insights.
Morningstar is an "A-List" provider of independent research for individual investors (as well as financial advisors and institutions), including a variety of stock and mutual fund publications, websites and software. The
Value Line Investment Survey and
Investor's Business Daily are nectar for stock data junkies.
MarketWatch (online service from Dow Jones),
CNBC (cable channel and website) and
InvestorGuide all offer investors a wide range of helpful information.
Navigate the stock newsletter jungle
Hundreds of investment newsletters compete for the attention of people with money to invest, although quality and results vary tremendously.
I recommend: The best single resource is
The Hulbert Financial Digest which tracks investment newsletter results so you can see which ones are delivering. Two of my personal favorites are
The Motley Fool group of newsletters and websites, and
Profitable Investing from Richard E. Band, an experienced pro who's "been-there, done-that" in all market circumstances.
Pick your investment & brokerage account providers
Your choices include major banks that offer brokerage account services, discount brokers, full service brokers and mutual fund companies.
I recommend: If keeping your finances in one place is important to you, try investing via your bank. Not all banks offer brokerage account services. A few that do include majors like
Citibank,
Wells Fargo,
Bank of America,
Chase,
Wachovia and others. Discount or "premium discount" brokers, including
Charles Schwab,
Ameritrade,
Scottrade,
TradeKing, FirstTrade and
eTrade can all provide the accounts and tools you need to buy and sell stocks with low commissions. Full service firms include big names like
Merrill Lynch,
Edward Jones,
Morgan Stanley and
A.G. Edwards. A few top mutual fund families include
Vanguard,
T. Rowe Price,
Fidelity and
American Funds.
See our other stock investing How-To Guides
How-To Guides on Work.com and Business.com can help you locate all the tools and resources you need to be successful at investing in stocks.
I recommend: Other top-rated How-To Guides on successful stock market investing include:
Stock Trading: Success in both bull and bear markets;
Stock Quotes: Free online stock quote services abound. And add-ons can dazzle; and
Online Stock Trading: Trading stocks is fast, simple and cheap. Here's what you need to know.
The official source of Stocks (Equities) and Stock Investing is the Stocks page at Business.com
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