Investing in the stock market is probably the best way to accumulate long term wealth. However, there are some things you need to know for investment success. This article is designed to help the novice investor get off to a good start for long term success in investing in the stock market.
First off, pay off any credit card balances and other short term loans before even considering an investment in the stock market. Also, get in the habit of paying off your entire credit card balances every month. Paying credit card companies large interest on your balances is a sure way to prevent you from building long term wealth.
Second, maximize your contributions to your company sponsored 401K or 403B plan as well as your individual IRA. You will maximize your long term wealth by investing in tax deferred plans as opposed to taxable accounts. Some companies even match a portion of their employees’ investments. Your money will compound tax free until you have to begin taking mandatory distributions which start at age 70 ½ under the current tax code. Compounding your money tax tree is the best way to invest in the stock market.
Decide your stock market investing time horizon:
Now you need to consider your stock market investing time horizon and what kind of trader you’d like to be. Consider the following:
- Scalpers: This group tries to “scalp” small profits by buying or selling frequently throughout of the day.
- Day Traders: Similar to scalpers, this group might buy and sell the same stock as many as 50 times in one day. They try to exploit the volatility in the market.
- Swing Traders: These traders buy and hold their positions for several weeks or several months before selling.
- Long Term Traders: This group buys and holds their investments for many years.
For beginners, it would not be wise to try to invest in the stock market by scalping or day trading. My Rebound Trading Systems are “swing trading” systems which enable the investor to invest in the best performing segments of the stock market and then continually upgrade their holdings as market conditions change.
Look at all your investment options:
Everyone should have some money allocated to the fixed income market such as Corporate Bonds, U.S. Treasury Bonds or Notes, or CD (Certificates of Deposit). If you are in a high tax bracket, Municipal Bonds are a good alternative because the interest paid is not subject to federal income tax. Depending on your age, the percentage of your total investments allocated to fixed income should range between 20 and 40%.
Investors can invest in a mutual fund directly with the Mutual Fund Family. However, it is far better to purchase mutual funds from a discount brokerage firm that handles many different families of mutual funds. (T.D. Ameritrade, Charles Schwab, and Scottrade, are three good alternatives.) This enables the investor to trade or upgrade their mutual fund holdings between various mutual fund families by placing the order with their discount broker. Mutual Fund or ETF Trading can be done online with a very user friendly trading platform.
Tips of investing in the Stock Market:
1. Select a Broker: Once you are ready to start investing in the stock market, you will need to set up an account with a stock broker. There are full service brokers and discount brokers. One attractive alternative is to have an auto-trade broker who will place the trades on your behalf.
- Full Service Brokers
Full service brokers will make recommendations on what to buy. However, the individual brokers are limited to what they can recommend based largely on the firm’s research recommendations. They are unable to sell you a no-load mutual fund. They sell only loaded funds that carry a large front end commission or large commission when you sell. You can develop an on-going relationship with a full service broker since you will be placing all of your trades that broker. The commissions at full service brokerage firms are significantly higher than those at a discount broker. Full service brokers include: Smith Barney, Merrill Lynch, and A.G. Edwards.
- Discount Brokers
With a discount broker you make your own buy and sell decisions. You will be free to buy no-load mutual funds, individual stocks, and exchange traded funds. The commissions will be significantly lower than the commissions at a full service broker. While you can place your trades by telephone, you will find it much more convenient to place your trades on the discount broker’s trading platform. These trading platforms are user friendly and facilitate the trading process. You can download the necessary forms to open an account and wire transfer your money to your new account. Unless you feel you need “hand holding” and are willing to pay higher commissions, I recommend you consider trading with a discount broker. Discount brokers include: T.D. Ameritrade, Charles Schwab, and Scottrade.
- Auto-Trade Broker
If are unable or not interested in placing your own trades, an Auto-Trade Broker is a good alternative. Your commission charges will be a bit higher that with a discount broker but you will not have to check your email each evening and place your own trades. The Auto-Trade Broker gets the trading signals at the same time as the subscriber and places the trades on the behalf of the subscriber. You can always see the value of your portfolio as well as the individual holdings on the Auto-Trader’s trading platform. For those who never want to miss a trade and not have to worry about placing the individual trades, an auto-trade broker is a good alternative.
- Know the Minimum Account Size Requirement
You can purchase an Exchange Trade Fund or no-load mutual fund with as little as $1,000 to $2,500. However this would not give you much diversification. I recommend a minimum investment of $5,000 in each investment. That would equate to a minimum portfolio sized of $25,000 to $35,000 depending on which system you decide to trade. These systems could be traded with half that amount but the commission charges as a percent to the total portfolio value will naturally be higher.
- Become Educated
I've developed a Mutual Fund Trading System that helps me buy and sell No-Load Mutual Funds and Exchange Traded Funds at a success rate that routinely beats the performance of the S&P 500. I study the market and put a lot of time and effort into my fund portfolio recommendations so you don't have to. All you need to do is buy the funds I tell you I'm buying, and sell the funds I tell you I'm selling. It is really that easy. I do not play favorites and hold on to funds that have been good to me in the past. I hold funds that make money and sell funds that don't. And I tend to be conservative in my selections because I buy the same funds I recommend to you. When fully invested I hold seven funds in the portfolio. You will keep the same number of funds in your portfolio. Subscribers should divide their total portfolio value by 7 and invest 1/7 of the total in each recommended fund. To learn more, please visit www.reboundtrading.com .
Stock Market Investing Basics for Beginners
