Frequently asked questions about investing
Well the first thing you would have to consider as a beginner is whether you are investing for the long term or the short term. What is your primary goal when it comes to trading stocks? re you looking to save for retirement? In these situations, you would not have access to your money for decades. Or maybe something much more short term, the trip of a lifetime coming up next year? When investing for retirement, you are look for more consistent companies. You want to invest your money into a blue chip stock which pays dividends. So over time now, not only will the value grow, it will also pay you out dividends every month for holding the companies’ stocks. If you want riskier, short term investing such as day trading options, then you want more volatile stocks.
Stocks are definitely the most well-known option when it comes to investing. Picking and choosing the companies that will yield you the best return Is the most important yet more difficult to do. Instead, beginners tend to spring for investing in an index fund which invests in a group of companies in various industries as opposed to just a single company in one industry. Bonds on the other hand are investments in which you loan money to a company or the government with a fixed interest rate. They have lower returns than sticks but there is much less risk in bonds as they are not affected by the daily market fluctuations. Alternative investments that are available are real estate and commodities as well.
Studies have shown that trying to choose your own stocks is almost always a losing pick even with professional day traders. Also, the more that you trade stocks, the more likely you are to be hit with trading fees which take away from any of your profits.
Risk tolerance really comes down to how much of a loss you are willing to take, which is important in shaping your portfolio. If you feel that you are up at night, thinking way too much about investments and stressing over a downturn in the market, then your risk tolerance might be way too high. On the latter, if you feel that you are missing out on potential earnings then you might just be a little too conservative. There is quizzes available online that allow you to figure how aggressive of a portfolio to have. Also, the time horizon is another key factor on figuring out how much risk to take.
Imagine a deadly pandemic sweeps the planet and closes 100% of nonessential businesses and overloads the essential ones, overloading production and manufacturing causing shipping delays and a spike in demand of household products such as toilet paper, cleaning wipes, gloves, masks, and Clorox. Does it sound familiar? What would happen to you if all of your investments were in, let’s say, the airline industry? However, on the opposite end, if you had invested all your money in a company like Amazon, you would have a pretty impressive return right now. So at the end of the day, it is all about balance in your portfolio. You want to have a variety of different industries to keep your risk tolerance lower in terms of worldwide events or current events that might affect the company’s business.
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