If you are just working your first job why do you want to know about stocks? Any age from 16 to early 20s is a good age to start. If you start working or have any income you can invest in stocks. Investing in stocks is not just for the guys in the corner office of a large company wearing three piece suits, it is for anyone who wants their money to work for them. This article is for the people who want to invest in stocks but, don’t know where to start or what stocks are.
Stocks are partial ownership papers to a public company. A private company is one where the owner owns 100% of the company. A public company is one where the owners decide to issue stocks of partial ownership so for a price the general public can offer money for the stock and buy part of a company.
The controlling owner is usually the person who started the company or someone who bought the company. When a company goes public the company is divided into shares (representing a portion of ownership). The shares are called stocks which are put up for sale. There are three main owners of stock: the controlling owner, the individual stock purchaser, and the mutual fund managers.
A mutual fund is a group of shares from different companies which are purchased individually by mutual fund managers. The managers then issues shares which represents ownership of more than one company. see the example below:
If stocks are bought “directly” they are usually through an administrator. This is an accounting company who issues the stocks on behalf of the company who’s stock is for sale. The advantages are you can buy partial shares, you have more control over which companies you buy, and you can see the fees up front.
- Budget money to invest (savings)
- Have low or no debt (otherwise it is like investing with borrowed money; like people did during the Great Depression)
- Have an emergency fund before you invest (nothing is worse then selling stocks during a temporary dip to cover a emergency)
- Is there a 401k available to you at work? (Invest to the company match at least to not leave money on the table and get a tax deferred way to invest.)
- Invest in a low cost index fund through a discount broker with low fees
- Don’t buy through a bank, insurance company, etc
- Buy through a mutual fund company or discount broker
- Check any fees or costs involved
- Invest in individual stocks via a direct purchase plan with low or no fees and a DRIP available
- Be wary of costs of purchase, sale, trade and administrative for the direct purchase If there is a high sales cost, look to see if the stocks can be moved to a discount trader like Scottrade and save costs.
- Look for No-Load DRIPs
- It can be simple and it is; if someone offers you a investment and you don’t understand the terms pass on that investment.
* Unit Trust can be used for Mutual Fund if you are from the UK, the Unit Trust serves the same function in the UK.
*This article to expose people to stock investing and everyone’s financial situation is different (this article is not advise) so check with qualified professional people who know about stocks so you can make the right decisions for your money.