If you want to increase your personal net worth, the stock market provides a great way to start building a portfolio. While stocks form the backbone of an effective portfolio, many novice investors find the process of identifying good stock opportunities and purchasing shares overwhelming. If you are curious how to invest in the stock market, it’s important to understand how different asset classes can affect your portfolio’s diversity and earnings potential.
There are many different ways to profit from stock market investments, but each investor needs to identify the type of investing that will work best for him or her. No two investors are the same, and investing successfully requires tailoring your investments to your personal approach.
Hands on or off?
Before you start investing, decide whether you want to take a hands-on approach or want to sit back and let other people handle the daily management of your portfolio. This choice will help you determine what types of assets to invest in, and will affect how much time you spend tweaking your investment portfolio.
A hands-on investment strategy requires regular attention and research that represents a serious time commitment. By picking different types of assets, you can be a more hands-off investor who relies on other people’s expertise. Neither approach is necessarily “better,” but it is critical that you select the strategy that fits into your lifestyle and investment goals.
If you choose to be a hands-on investor, you will probably purchase individual company stocks and buy and sell shares relatively frequently as the market changes, according to Russell Investments. This is a very active approach, and it can lead to big gains and losses. Success in this type of investing relies on your personal knowledge of market trends that are affecting the companies you invest in.
A more passive approach will focus on mutual funds and index funds. These are collections of stocks and bonds that are managed by an outside expert, according to Investor.gov. When you invest in a fund, you give the fund the capital it needs to make investments but do not own individual stocks yourself. Instead, you get a cut of the earnings when the fund’s investments perform well. Because a fund is managed by someone else, you can take a step back after you invest.
The benefit of being hands off
As a new investor, you may not have the deep market knowledge needed to prudently buy and sell individual company stocks, and you might be unprepared for the time commitment required to actively invest. Hands-off investing is probably the best choice for a new investor, and will give you time to learn how the market reacts to the global economy. If you want to be a more active investor later on, spending time invested in more passive assets should provide you with a solid knowledge base.
How to start investing
It’s actually very easy to start buying and selling stocks over the Internet. You can get a low-cost brokerage account through a number of online brokers, and you can even send a set amount of your paycheck or other form of income to the account regularly using direct deposit, according to Fidelity Investments.
The importance of diversification
The stock market is inherently volatile, and savvy investors who start their portfolios with stock investments eventually diversify into other asset classes. Single-family real estate investment offers a way to isolate your portfolio from stock market fluctuations while building equity in a physical asset that offers steady cash flow from rental payments. Register on HomeUnion’s site to view hundreds of prevetted real estate investments and start diversifying your portfolio today.