There are a number of reasons you may want to invest in the stock market. You might want to save toward your retirement, to build a savings nest egg, or to fund your children's college education. Investing in the stock market involves significantly more risk than putting your money in an FDIC-insured bank account, but it also provides the opportunity for significantly greater returns. You may begin trading in the stock market with a minimal investment.
1. Create a financial plan. Before you start any kind of investment program it is best to have a clear understanding of your current financial situation, your financial goals, and your investments temperament. Create a budget to determine where you are currently spending your money and how much you have left over to invest. Create a net worth statement to determine where your current assets are invested. Ask yourself about your feelings about money to determine your investment temperament. Determine how much money you have to invest and how frequently you want to invest.
2. Do your research. Once you know what you want your investments in the stock market to do for you, find stocks that match your criteria. Contact the investor relations department of each company you are interested in investing in and request an annual report. Read the report to determine such information as income, expenses, management, dividend history, stock price history and recent developments or innovations. Research any news that may have a positive or negative impact on the company's future. If you don't feel competent to conduct your own research you may need to seek advice from a qualified investments broker.
3. Open an account with an investments brokerage firm. There are three primary types of brokerage firms: full-service firms, discount firms and online firms. Requirements to open an account are similar for all three types of brokerage firms. You will need to complete an account application, which typically involves providing your name, address and Social Security number. Some firms require you to provide the name of a beneficiary for your assets held by the firm in the event of your death. Some firms may require you to disclose your level of investments expertise in the event you wish to invest in certain sophisticated or risky securities.
4. Determine the stock you wish to purchase and place your order with your broker. You may either enter your order at the market or you may enter a limit order. Orders at the market will execute at the stock's current market price. You may designate the highest price you are willing to pay for a stock by entering limit order. Inform your broker regarding whether you wish to take possession of the stock certificate or if you wish the brokerage firm to hold the certificate in street name. Stock held in street name typically requires less handling when you get ready to sell the stock.
- Few individual investors have sufficient assets to obtain a properly diversified stock portfolio by purchasing individual stocks. You may gain both a diversified stock portfolio and professional management of your portfolio by investing in a mutual fund.
- You may access the annual reports of publicly traded companies through Edgar, the Security and Exchange Commission's "Filings & Forms" website.
- Investments in the stock market involve risk. Stocks are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. You may lose some or all of your investment.
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