How to Invest in the Stock Market

Investing in the stock market can be a very risky choice, but the risks are often rewarded for those who invest wisely. There are several factors that come into play when investing in the stock market that set those who succeed and those who fail apart. This brief guide will attempt to give a good primer for those new to the game of investing on how to invest in the stock market.

Decide how much money you can afford to lose

The first thing you need to do is determine the amount of money you have saved up this very moment that you could throw out the window and still survive without. This is especially true for people who may not have a large or steady income, or those who expect to be trading primarily in high risk stocks.

All investments, no matter how secure and steady they have been in the past have the chance of flat lining, and taking your investment with it. Because of this, it is important not to invest too much of your money into the market, unless you are absolutely sure about your abilities or are going to be investing heavily in blue chip stocks and other low risk options. Putting your entire life savings and your children’s entire college fund into the market is not how to invest in the stock market.

Choose a broker that fits your needs

You have two major options when it comes to choosing the type of broker to manage your money through. Full service or traditional, stock brokers are highly paid, sometimes effective brokers who not only manage your investments but also give you advice regarding the market, relevant news, and other information that will tell you how to invest in the stock market wisely. The drawback is that they charge exuberant fees, sometimes $150 per trade, on top of maintenance fees and annual account fees. Unfortunately, this means that if you get a broker who is more interested in making money than making you money, he or she may make trades that are not wise but benefit the broker simply because the trade was made.

Full service brokers usually work for large brokerage firms like Merrill Lynch, Goldman Sachs, and Edward Jones. The other type of broker, which can refer to an actual person or a brokerage service, is called a discount broker. Discount brokers offer nothing more than the ability to buy and sell stocks. Discount brokers do not offer advice, nor do they research trends or measure the market, but they trade your stocks for a much cheaper fee, usually in the $4 – $10 per trade range. These types of brokers can be individuals of small firms or online trading services, such as E*TRADE or TD Ameritrade.

Choose your investments wisely

Once you have chosen a broker, you will then either discuss your options and plans with your full service broker or begin researching the market on your own. The old adage “never put all your eggs in one basket” was made for the stock market. Diversity, not only in the type of investments in your portfolio, but also in the types of companies you invest in, is key.

You do not want to put all your money in an industry to find that it has suddenly had a complete collapse and the companies in it have all bankrupted. Spread out your investments to include low and high risk investments, so that if losses in one are experienced, they are negated by gains in another. And never be afraid to ask someone who has more experience in the market than you how to invest in the stock market correctly.