Navigating the stock market is an intimidating journey these days. The big, supposedly safe stock options suddenly aren’t fool-proof. However, it’s still possible to build up a diversified, safe stock portfolio that will provide a good return on your long-term investment. Here’s how you get started.
Step 1
Get a 401(k) and an IRA, and invest in each as much as possible. A 401(k), or employer-sponsored savings plan, allows you to save money by investing in a choice of mutual funds, stocks and bonds. You defer paying income taxes on the portion of your money that goes into the 401(k), and many employers will match contributions up to a certain amount or percentage. An IRA works in much the same way but without employer participation.
Step 2
Build with safe purchases. Braun Mincher, author of “The Secrets of Money,” recommends an index fund as the most “prudent, basic investment” you can make. It’s a good, safe way to begin building your portfolio at a very low risk.
Step 3
Add in a “no load” mutual fund. A mutual fund, which is composed of multiple company’s stocks, often carries with it a load, or sales fee. Look for a mutual fund which is “no load,” meaning no additional fees when you buy or sell your stock in the fund.
Step 4
Consider your company’s stock options. If your company offers stock options, investing some of your money can be a good idea. The key, Mincher says, is not to invest all of your money in your own company’s stock.
Step 5
Look for companies that offer perennially needed services. The stock market will fluctuate, and trendy start-ups are often the quickest to fall. Purchase stocks from companies that provide goods and services in demand even through tight economic times: electric and water utilities, phone services and the like.
Step 6
Keep your investment as low risk as possible. The point is not to show off your confidence and market savvy, but to increase your investment over the long term. As Mincher says, “Do not be bullied into doing dumb things with your money to show off.”
Step 7
Invest small amounts in uncertain companies, start-ups and other riskier stocks. If you really want to put some money into that new technological start-up or the solar panel company you just heard about, keep it reasonable. If things don’t work out, you don’t lose much. Keep a close eye on your riskier investments so you can sell prudently if things go downhill.
Warnings
- Individual stocks are usually the riskiest investment.
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