Business & Finance Stocks-Mutual-Funds

Tips for the Beginning Stock Investor

Everyone at some point or other starts to think about beginning to invest in the stock market using more than the passive "buy and hold" approach. Even if you have a retirement plan at work, it's tempting to open up a taxable investing account and try your hand at some more active investing strategies. After all, if you can learn enough about investing to take a small portion of cash and turn it into big profits, then it will have been worth the effort. Before you get started, I would encourage you to consider these guidelines:

First, only actively invest with a small percentage of your entire portfolio. A majority of your investing should be done with tax-advantaged retirement accounts holding a diverse set of investments, if your main goal is to save for retirement. A good rule of thumb is to keep your taxable, active investing to around 10% of your entire investment portfolio. So if you have $100K saved up for retirement, then you can use your next $10K for active investing strategies. Of course, that's just a rule of thumb. You may be willing to take more risk.

Secondly, learn a specific strategy and stick to it. There are various active stock trading strategies that you can learn which will give your trading the discipline and consistency that it need to survive the long haul. Two common strategies are "market timing" and "undervalued stock picking." I suggest you research these methods and see if they appeal to you.

Finally, use a low-cost online stock broker to do your active trading. Since you will be making trades more often with your efforts, you will need to work with a broker who won't charge you an arm and a leg to trade. Traditional mutual fund companies are expensive. However, the Internet has made it easier for some of the best online stock brokers to offer cheap trading. Some as low at $5 a trade.
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