A Primer on Investing in Stocks | Bank Loans and Rates

A stock-inclusive strategy is still viewed as the best way to prepare for retirement

Buying stocks gives the buyer part-ownership in the corporation via the purchased shares. An important thing to remember is that unlike CDs and savings accounts, stocks are NOT insured. You can lose money if their value goes down.

You can buy stocks through:

• A full-service brokerage, or
• An online discount brokerage.

Full-Service brokerages include firms like Fidelity and Vanguard etc.? Online brokers on the other hand, are cheaper, and for many small investors, a much more cost-effective bet.? Online brokers include Ameritrade, E-Trade and others.

The name of the game with buying stocks is diversification. The aim of diversification is to lower overall risk by spreading it out among different stocks. If you invest massively in a single stock, you are at the mercy of that stock, regardless of how much of a ?blue chip? stock it is. Don?t ever do this, even if you work for the company.

By purchasing many different types of stocks or shares of a mutual fund-which also spreads your investments among many stocks-you minimize your risk if any one stock takes a turn for the worse.

With uninsured investments, the higher risk relates to higher potential reward.

While the last few years have seen steep declines in the stock market, plus similarly steep gains, investing in the stock market must be seen as a long-term endeavor. Timing the market should be seen as what it is ? a fool?s errand.

Stock market returns over long periods of time are higher than checking accounts, and CDs. However, tomorrow has no guarantees for your specific stocks.

A great approach to investing in stocks is to reduce risk is dollar-cost averaging i.e., buying a few stocks every month at the prevailing price. In low months, you can pick them up for a cheaper price and in high valuation months, they will be more expensive. This is a disciplined strategy however, as well as diversification among types of stocks, buying different countries? stocks, and having a great deal of patience.

One last work here is that your exposure to stocks should be less as you near retirement. In other words, the closer you get to retirement, the more you should have in fixed interest vehicles, such as CDs and bonds.

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Tags: ameritrade, brokerage, dollar cost averaging, E-trade, featured, Fidelity, investment, mutual fund, risk, Stocks, uninsured, Vanguard

Category: Personal Finance

Source: http://bankloansandrates.com/2011/06/10/a-primer-on-investing-in-stocks/

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