Tips & Warnings

• Realize that there are two ways to make money in stocks: through dividends and through price growth or capital gains. Analyze your objectives and determine whether stocks that return high dividends are best for your portfolio, if you must be searching for capital gains or if you must search for something in between.
• Don’t overlook materials made available by brokerage firms. While those companies do have something to sell, reputable firms have no vested interest in selling one stock versus another, and their websites and printed materials are filled with insightful information.
• Before committing to buying individual stocks, take some baby steps by investing in mutual funds. Funds have low entry costs and offer diversification, that reduces risk. They’ll also teach you about the ups and downs of the market and provides you a way of your personal level of risk tolerance.
• Dip your feet into investment waters by participating in an online stock market game. You can practice trading in a realistic simulation before you commit real money.
• Attend free investment seminars, however look out for scams. Some seminars could be well worth your time; however others are thinly veiled tries to sell a specific investment product. Before you take anyone’s recommendation or jump into a purchase, ensure to do additional research on your own.
• Past performance is no guaranty of future returns. Stocks or mutual funds that were past winners would possibly continue to do well, however you can't rely on the past as an indication of the future. The stock market is notorious for alternating between bull and bear market cycles, and you need to understand that it’s just as easy to lose money as it is to make it.
• Watch out for high trade prices. Full service brokerage companies charge high fees that make little sense for small investors. Discount firms – many of them online – are significantly more affordable, and many further reduce prices if you set up recurring purchases.

Posted on  Monday, 14th of May, 2012.