March 2009 was a bad year for investors. The Dow James industrial average lost nearly half its value in six months and was languishing at its lowest point ever in more than a decade. The company went down with people’s life savings in tow. Many people were stranded and chose to either bail out or stayed frozen in place unsure of what the next best move could be.
Two years later, the Dow James company greatly doubled since its down side in 2009 and bold investors reaped their rewards handsomely. This turnover greatly improved investors’ attitudes and they are once again willing to embrace risk.
First time investors should learn and take note of is that with stocks returning an annual average of approximately 8 percent over the past century, and then it is clear that patience and perseverance are greatly rewarded. This should also serve as motivation for future investors as they embark on a career in creating a long term stake in the markets. One should also do some proper research before leaping forward in an investment.
Before you start
One should make sure they have sufficient funds to cover any unforeseen expenses. According to Charles Rotblut, the vice president of American Association of Individual Investors, a good rule of thumb is to have at least six months’ salary saved up. Investors should also think in terms of what would happen just in case they lost the salary they depend on, and how long it would take before they got a new job in the current economic situation.
It would be wise to keep a year’s salary in form of cash or cash equivalents at hand. Emergencies like health conditions may come up that may require money that was not initially budgeted for. Once an emergency fund has been set up, start on a retirement fund. If your employer offers to match up your 401K contributions, make sure to contribute enough to get the maximum benefits. After all this has been done, then a brokerage account can be set up.
Where to look
One should think about what kind of investments they would like to own before opening an investment account. If the investment of choice is to buy stocks and bonds and exchange traded funds, then an investment account is necessary. For newbies, online brokerages are a good place to start. Most of these online brokerages offer very low costs, a lot of educational tools and some hand holding. Fidelity or Charles Schwab comes highly recommended by Steve Juetten, a financial planner in Bellevue, Washington.
Other solid choices that were recommended were TD Ameritrade and Scottrade. These institutions also had brick and mortar locations as well. If the balances are fairly low, read the fine print to ensure one is not charged for maintenance charges and other monthly fees. If one plans on trading frequently, look for a firm that offers low trading rates.
After transferring money into the brokerage account, start building a portfolio. Research shows that investors who set up a desired asset allocation and focus on maintaining it at low costs tend to outperform those who aim high and incur high investment costs and taxes.
Every young investor who does not have much to invest should know that every dollar invested and compound for the investor now is even more valuable.
If one’s interests are only in owning mutual funds, then a brokerage account may not be necessary. As an alternative it is quite possible to buy funds from directly from companies like Fidelity and Vanguard without having to establish a brokerage account. A sales fund charge family allows one to trade in-house index funds with no upfront fees and with no ongoing expenses that are highly competitive.
One should be keen not to miss out a golden opportunity to make your money work for you as it idles in a bank account. Also be keen to take necessary precautions as a newbie and know that online brokerage sites are a great place to start.
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