Wednesday, September 28, 2011

Best Online Investment Strategy 4 Dummies - Success In 10 Steps

Online Investing for Dummies: 10 Steps for Success

This guide to online investing for dummies provides the step-by-step financial help you need. You will learn how to find money to invest, choose the best investment approach, watch your money grow, and get out when the time is right.

Before Investing

Instead of working more hours or cloning yourself, you can put your money to work for you. "Investing" essentially means putting money into something with a reasonable expectation of making a profit. Online investing for dummies is not gambling or a get-rich-quick scheme; it involves commitment, research, analysis, and action.

1. The first step in investing is getting your financial situation under control. Making 10% returns on investments will not matter if you are losing 20% per year to credit card debt. Before you invest, your debts should be manageable, even if they are not yet completely paid off.

2. Consider your long-term well-being. Have you set aside three to six months of your salary for an emergency fund? Have you maximized all company retirement plans up to at least the employer match amount? Investments can be risky, so you should never invest funds that you cannot afford to lose.

3. Find the money to invest. Common sources of the first $500 to invest are tax refunds, employment bonuses, and gifts. Many funds forgo the initial lump sum investment requirement if you sign up for automatic deductions, usually $25 to $50 monthly, from your checking account.

4. Pick the stockbroker service you will use to trade (buy and sell) funds. Your options, listed from lowest fees/lowest service to highest fees/highest service, are:
Online/discount brokers process your investment orders online or over the phone. They provide no local offices or financial advice, which is how they can offer the lowest fees. Investors who choose online/discount brokers must be knowledgeable enough to make their own investment decisions. Some companies charge additional fees for research reports, investment tips, and financial newsletters. Full-service brokers offer one-on-one consultations and personalized investment, budgeting, tax advice, retirement planning, and estate planning assistance. Their fees are larger than discount brokers, but they thorough investment plans based on age, lifestyle, risk tolerance, income, assets, debts, and other factors. Money managers are like full-service financial advisors, but they are authorized to manage client accounts completely. In exchange for their hands-on approach, they charge hefty fees. When you are selecting a brokerage account, understand when trades are actually made. Some discount brokers execute all trades one day per week, while others charge for real-time trading.

While Investing

5. Keep in mind your risk tolerance. How much can you afford to lose? A 35-year-old executive might seek maximum growth with high-risk funds, knowing that he has plenty of time to make up for any huge losses that might occur. On the other hand, a 70-year-old might invest conservatively in money markets and CDs because she needs to preserve her capital (money invested).

6. Consider your goal timelines (time horizon). How much would you like to accumulate and when will you need to withdraw the funds? Are you saving for a trip, tuition, a house, retirement? If you plan on withdrawing your money in less than five years, investments with fixed interest may be better than variable stocks and mutual funds.

7. Compare investment options. Combining short-term, long-term, aggressive, and conservative investments leads to a diversified portfolio. Because the money is divided among different pools, a drop in one fund may be offset by a rise in another.

Direct Stock Purchase Plans (DPPs): DPPs let you purchase stocks directly from the company without paying brokerage fees. You can buy partial shares, but the stock selection is limited and DPPs can be difficult to find. Mutual Funds: Mutual funds are diversified collections of stocks managed by money managers. No-load funds do not charge fees for buying/selling, while front-end load funds collect fees with each purchase and back-end load funds charge fees for each sale. Growth investing: Growth investing offers high potential rewards and losses through the next "best thing." Investors buy small company funds with low prices now in anticipation of rapid growth later. Value investing: Value investors focus on companies with proven track records that are selling at discounted prices. Passive investing: Passive investors take a "set it and forget it" approach by choosing funds that are indexed to the performance of certain fund groups, such as the S&P 500. Active investing: Active investors make hands-on decisions about individual funds based on the potential for gains.

8. Define your limits to avoid making panicked decisions based on fear. At which price will you buy/sell stocks? Will you sell if a share price increases/decreases by a certain percentage?

9. Take action. The earlier you invest, the longer your accounts can grow. You can invest in a lump sum or use dollar cost averaging, which means investing small sums every month in hopes of achieving an overall lower purchase price (buy low, sell high). Investors who would like to practice before putting down real money can join a free investment simulator.

After Investing

10. Continue to monitor investment performance. Trade funds when they reach your predetermined limits. As your goals change, you may also need to change your investments.

Online investing for dummies is all about understanding the basics, fitting them to your personal situation, and taking action. By applying a few simple steps, you will be on your way to substantial success.

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