Online investing for beginners can be daunting. There are lots of words being thrown around that most people don't know. All of the options for people to choose from can be overwhelming. Most people just don't know anything about where to begin, so they decide to just wait it out and "get to it later".
The problem with that approach is that the longer you put off something, the more difficult it seems to become! Instead your best bet is just to learn online investing now so your money can start working for you sooner AND you have one less thing on your mind!
To get started, here's a few very basic definitions of the most common forms of online investing:
Bonds - a loan from you to a corporation or government that they will pay back to you with interest. These are generally safer than stocks, but may provide you smaller returns.
Stocks - a share of stock is a piece of ownership in that company. If you own 100 stocks, you own 100 times as much of the company as someone with only one share!
As the economy changes and the company grows or shrinks, so will the stock price. Also, the public view of the company can alter the stock price.
That's it for the types of online investments available. Although there are certainly others- and more detailed descriptions of these- this will help get you started with online investing for beginners.
So now that you know what these are, you're asking "what do I do now?" The next step is to figure out how risk-averse you are.
In other words, how risky are you willing to be with your investments? Are you of the "big risk, big reward" mentality? This can cause you to hit some home runs, but it also means you might be more likely to lose money on your investments. If this sounds like you, you might want to try investing in individual stocks or certain mutual funds.
On the other hand, maybe you don't want any risk because you want to retire soon or are saving for a house. In that case, you'll want to pick more stable investments, such as bonds or bond funds.
Generally, mutual funds and index funds are also safer than investing in individual stocks. At least with a fund, you won't lose all of your money if the company goes under. Instead you'd just lose the small portion tied to that company.
So now that you know if you want higher risk or lower risk, you select what you want to invest in. Knowing your investment type will lead you to the next step- finding a broker.
There are dozens of companies that offer brokerage services. I recommend going with the larger ones, as they've built up more trust and loyalty over the years.
For mutual funds or index funds, I recommend using T Rowe Price or Vanguard. They have some of the lowest rates out there, but are both very large and respected companies. Vanguard is usually quoted as the best value, but T.R.P. is great too.
For a stock broker, the cheapest (but still good) options are Sharebuilder, Sogotrade and Zecco Trading. These will allow you to buy stocks for $5 or less per trade, which is a good bargain. However, it means that you will want to usually spend at least $100 per trade, otherwise you're eating into your gains from the transaction fees.
Basically just look at their websites and sign up for whoever looks best to you. Once you're in, then just look around and use their free tools to help you select a product. If you need help, just contact their customer support or ask someone you know who already invests online.
Good luck, and I hope you learned a lot from this guide on online investing for beginners!
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