There are two choices you have while investing in the stock market – active investing and passive investing. In the active style, you pick your own investments and make all the decisions about your money. In the passive style, you simply let your investments mirror a stock index or a collection of stocks selected by a third party.
When you hear the term investing – most people are referring to the former. A lot of people believe that you have to constantly monitor the market and keep on top of all the news about stocks you own. Whats ironic about all this ‘active’ management is that even after all this monitoring the odds are against you to beat the benchmark such as the S&P 500 Index. If you think this is a lot of work for very little return you can choose the more ‘passive’ style. In this form of investing, you pick an index and buy an ETF that mirrors the returns of the index. All other things being equal, your returns will mirror that of the indexes with very little management or research on your part.
At this point, you have probably figured out which style suits your personality best. Before we jump into the exact steps involved in buying stocks, you have one more step to complete. You have to plan and set goals before you start investing. Why before you ask? Stock investing can be a very emotional process. That is because everyone is very emotional about losing or gaining money. If have a few guidelines in mind regarding how much you want to make or how much you are willing to lose in a particular investment, you increase the odds of making better investing decisions during the whole process.
Some questions that you should answer before you start investing are:
– How much money do you need to sustain your current lifestyle in retirement?
– How far are you away from retirement?
– What type of investments are you comfortable with?
– How much money will you keep aside for short-term financial needs?
– What kind of returns on your investment (profit) would you be content with?
After answering the above questions, you have an idea of what your investing style is, how much money you’ll need and the big picture in general. Now, you’re ready to start investing your money in stocks.