By now you hopefully already have an online savings account. You’re putting money away into your 401K, and you’ve done your best lowering your expense budget. Great! But hopefully you still have some money left over that you can put to work somewhere else.
So where to put it? I guess you could go spend it on a new gadget. Or maybe a new big screen TV? Or maybe those new shoes you’ve been wanting. Hey, it’s extra money I don’t need right now, so why not?
Well, I think you should be putting some of that money into the stock market. The stock market has a long history of great returns on your money. What kind of return? Well, we can get nitty gritty about the details, and there’s lots of ways to calculate it. 5 year averages. 25 year averages. But it’s pretty safe to say that according to history you’re most likely to get somewhere around 10% returns on your investments in the market.
Ofcourse, any given year will be higher or lower than that. You’ll even have years that are in the negative because of a bear market. However, you’re investing for the long term. That’s the key. This is not trading the market. This is Investing into some of the best companies in the world. More than likely they won’t all be winners, but we’ll do great because we won’t put all our eggs in one basket.
Where do you start with the stock market?
You want to start getting your money into stocks, but you don’t know how to go about doing it. Well there’s many ways to do it. But mainly it’s either you do it yourself or you get some advisors help to do it for you. If you do it yourself it will cost you less money in fees, but if you’re not willing to spend the time on your money then you might be better off with an advisor.
I do it all myself because, well, I like to do it. For me it’s fun. I enjoy it. Secondly, I know nobody is going to care about my money as much as me. Nobody is going to look after my assets as well as me because it’s my life. It’s my money. That’s not to say that there isn’t some great financial advisors out there because there are many of them. I just prefer to do it myself.
Research your financial advisor if you go that route
If you do go the financial advisor route be sure to do yourself a favor and get many references before you go with one. Ask around at work. Research them online. Do some real digging to see what they’re all about. These people will be in charge of your hard earned money, so yeah it’s a big deal. Make sure you find the right one. This is just as important as finding a good doctor, a good dentist, or a good mechanic. You need to do the work beforehand, and nobody is going to do the work for you. Do your due diligence!
Also, don’t be tricked into thinking that because someone has a license they’re going to be honest and take care of your money. Or that if they’re part of a group like the NAPFA trade organization that they’re legit and trustworthy. Anyone can work they’re way into a license or work they’re way into NAPFA membership, but it doesn’t mean that they’ll take care of your money.
Do your investigating. You can start by checking out the resources at the SEC broker page. http://www.sec.gov/investor/brokers.htm This is the official government .gov site. From there you can find official links to research your broker, firm, and investment advisor.
Where so you go if you want to invest in the stock market yourself?
If you’re like me and like to do things yourself then you’d be best to stick with some of the big players for stock market investing. I use Scottrade and TDAmeritrade. Each has its advantages, and they are both reputable companies with a long history in the online stock market world. You can open your account with a computer and internet connection. Those two aren’t the only ones in town either. There are many other online brokerage firms that have a good reputation, including companies like E-Trade, and Charles Schwab, but that’s for another article. My experience with Scottrade and TDAmeritrade has been excellent, and I highly recommend them both.
Diversify your stock portfolio
Once you have yourself an account with a brokerage firm you need to figure out where to put that money right? If you’re a beginner I would start by investing into some solid well known blue chip stocks. The big names like Apple, Visa, Johnson and Johnson, Coca Cola, Wal-Mart, and Deere. However, be sure that you diversify where you put that money.
You need to try and spread your money into different industries. Tech, healthcare, consumer staples, banking etc. Don’t put everything you have into one industry. If you spread it around or diversify, then you’ll be safer when the market hits some headwinds or goes into a bear market.
The point of diversification is to limit your risk somewhat. Nothing comes without risk, but if you have all your money in just one stock then you’re just setting yourself up for disaster.
Start by getting into mutual funds
There’s two way I recommend you start with the stock market. You can start with individual stocks or if you don’t want to invest in just one company then you can invest in mutual funds. Vanguard has many low expense ratio funds that are diversified that you could get into. Those would be great to start with. Also with stock investments it’s probably best to invest