An in-depth knowledge of Wall Street is not required to start investing in stocks and bonds. If you’re looking to get started, we’ve got the primer you need to be successful.
Stocks and bonds are popular methods in which people invest money. When someone invests in a company’s stock or equity, they virtually own a share of the company. The better a company is doing financially, the more value is placed on that stock. A bond differs in that it is a short-term loan in which an investor is rewarded interest until the full amount is paid by the issuer.
Many experts choose to invest in both stocks and bonds to broaden their portfolios. Beginners, however, may choose to limit themselves to only one investment. This decision is typically based on various factors, including money, time and risk aversion.
Tip from the pros: If you have an interest payment of 10 percent or higher, you should pay this debt off completely prior to investing.
Here are a few sound tips for the novice investor.
Choosing your investment. Bonds are considered a more conservative way to invest money. Because the stock market is constantly fluctuating, bonds tend to feel more secure to the first-time investor. If you are looking to receive steady income from your investment, bonds are the better option.
Choosing the amount of your investment. Carefully review your finances before making any kind of investment—namely, how much money are you willing to invest and where this money should be allocated.
Talk to a financial advisor. A financial advisor will be able to help you choose what companies to invest in based on your beginner’s budget.
Open an account. Once you have selected the best investments for your financial situation, open an account at a full-service brokerage firm. Firms with fewer services will cost less money. If you think you may have questions along the way, however, a broker who can answer your questions or offer advice will be beneficial.
Set a budget. Professional investors recommend having at least six months worth of savings before putting money toward an investment. Shares in the stock market can range from $10 per share to thousands of dollars per share. If you have a limited budget, mutual funds may be an option to consider. A mutual fund is a professional program that pools money from multiple investors to purchase securities. Profit is then divvied up between stockholders.