Investing and trading through the web has been one of the most democratizing financial effects of the Internet. Brokerage accounts and detailed financial information that had once been reserved to t
he wealthy has been available to the general public for quite some time. Many millions of families now have portfolios where before their most convenient option was to open a passbook savings account.
How can a new investor get started in online trading?
Open a Brokerage Account
Many financial services firms have general purpose brokerage accounts available to the public. When you open an account, you will need to provide the same information you would if opening a bank account. Your initial deposit will likely be placed in a money market fund which may pay interest. This is the account you will use to make your first investments.
New investors should start with a simple investment like purchasing shares of a mutual fund. A mutual fund is a portfolio of stocks pre-selected by a fund manager and then combined into one investment. The price of shares in a mutual fund is called “net asset value” or NAV. You can purchase shares at NAV plus any applicable service charge.
The reason mutual funds are a good starting investment is because they are categorized by type and they are pre-diversified. Both of these things make it easier for a new investor to know what they are buying.
Learn to do Research
It has never been easier to do market research, whether you are buying stocks, mutual funds, bonds or commodities. Learning to read publications like Morningstar or ValueLine, understanding what a balance sheet is, and knowing what different statistics mean is one of the most important steps you can take to improve your ability to advance your portfolio. Even if you have to take a class or two to get up to speed it is worth it.
Establish Your Strategy
Investing is a long-term activity. What you should concentrate on is your time horizon and organize your portfolio so it maximizes your opportunities within your given time frame. An investor age 20 is not going to have the same priorities as another investor age 40 or age 60. If your funds are allocated properly, your investments will have the best chance of providing the safety and returns you want.
Learning to invest effectively is also a long-term process. The key thing to remember is assets will appreciate over time, and good investments will provide a good return.