By its nature, investing is an exercise in
uncertainty and risk and when your hard-earned dollars are at stake, the
pressure gets higher. That doesn’t mean you should avoid online investing – on
the contrary, a measured and responsible approach can greatly enhance your
earnings and help you reach your financial goals. As you dip your toes into the
investing waters, be sure that you keep in mind the following five steps:
1.
Decide what kind of investment you want to make
First, you have to decide exactly how much
money you’re going to use for investing purposes – settle on a set dollar
amount to begin with and don’t let yourself exceed that limit. It is important,
too, that you know exactly where that money is coming from, be it a savings
account or a sum you’ve received as a gift - and don’t invest more than you can
afford to lose. Apart from this being a responsible approach, settling on an
amount will help you choose a broker, as many have minimum balance
requirements.
2.
Have a safety net in place
Before investing, make sure that you really
can afford to do so – even beyond making sure that you only invest what you can
afford to lose, you should ensure that you have an emergency account or fund
set up that is readily available should an unforeseen expense arise. Many
experts recommend that your savings be able to sustain you for at least six
months. Consider stashing this money in a regular savings account, or perhaps
in a money market account (which will have a higher interest rate, generally).
3.
Choose a broker
There are wide ranges of brokers from which
to choose and picking the right one for you will depend on the amount that
you’re investing and how active a trader
you plan to be. Planning to make frequent trades – say, at least ten a month?
Consider a lesser-known broker that offers discounted trade execution fees –
even as low as $1. Looking for tons of resources and high-quality customer
service? Then an account with a household name such as Schwab might be the
right fit. Keep in mind that the SEC and FINRA hold all brokerage firms to the
same standards - so you should be able to fully trust any certified broker.
4. Do
the research
Whether you’re hands-on or more
laissez-faire, you need to be making informed decisions with your money – and
that means doing your own research. Peruse any research reports and don’t be
afraid to choose index funds over active funds; many studies have shown that
active managers don’t perform better than that the market index. In addition,
always look at a fund’s expense ratio for a better idea of after-fee returns.
Not only will you find better stock picks this way, you’ll feel more confident
and less hesitant about your choices.
5.
Stick to your principles
Now that you’re invested, don’t lose sight
of your goals, or of the strategies you’ve chosen to help you reach them.
Purchase a range of securities, from stocks and commodities to obscure funds,
to ensure that your portfolio is fully diversified. Identify markets that you
find interesting, as that will make them easier to understand and more
enjoyable to research. Most importantly, pick a reasonable goal – such as a 10%
profit after one year – and then choose and invest decisively, confident in
your ability to make informed selections. There is no room for hesitancy or
second-guessing in online investing.
