Financial Advisors: How to Choose the Right One

Nowadays, there are many events in life in which we could do with a little bit of financial advice. The right financial advisor for you will depend on your personal situation. Whatever that may be, making a decision can be quite overwhelming. Here are some tips to make the choice a little easier.

What does a financial advisor do exactly?

Financial advisors help people to realize their financial goals by providing advice as to how best manage their money. The term is a wide-ranging one, as there are several types, who specialize in different areas, and have different qualifications and job titles. Additionally, the term can also refer to computer algorithms which manage your money to optimally balance your investments, for maximum yield and minimum tax liability. Online tools are also available to assist in future planning, and prove much cheaper than consulting someone a bit more flesh and blood.

 

When might I need a financial advisor?

There are many situations in which hiring a financial advisor could prove wise. They will advise you on the best options available, help you prioritize, and be a comprehensive source of information. Here are some examples:

 

  • At the time of a major life event: getting married; starting a business; buying your first house; leaving a job.

 

  • When money issues can be overwhelming: an inheritance; getting divorced; selling assets; tax issues; dealing with multiple financial goals; lack of financial security; debts.

 

  • To assist with decision-making and provide specific information: net worth of your assets; fund management; income management for retirement

 

Which type of financial advisor do I need?

 

It is important to choose the correct financial advisor for your needs – to avoid unnecessary costs and get the specific information and service you require.

There are three major factors that will influence the category of professional you require: your budget (to spend and invest); the degree of complexity of the decision; and the duration of the planning needed.

For example, there are some financial advisors who won’t work with people who have less than $250,000 in assets that they are ready to invest, and similarly if you have a small amount of money it makes little sense to spend it on fees. Anything under $25,000 would therefore likely be best served via “robo-advisors” online, because such companies offer low-cost money management and advice, providing tools and advice based on algorithms. If your sum lies somewhere in between the two, then it is a case of weighing up whether you need the human touch or not. In the case of higher amounts available being ready for investment, it doesn’t automatically mean that one-on-one advice is necessary.

Another key factor is the complexity of the financial situations. The more

straightforward it is to resolve or manage, the more likely that an automated, online system will suffice. However, for situations such as complex portfolio investments, estate-planning, or divorce, it might be that a personally assigned expert is what you require. This is also more likely to be the course of action if the investments are long-term and require regular monitoring and management.

How to choose a specific advisor

Now that you’ve identified what you need, it’s time to find it. If you opt for an online service or robo-advisor, then ensure you search out companies with low fees, low minimum requirements, and savvy tools that hold up to scrutiny. Check that your chosen supplier, has some specialist knowledge.

If a human-robo hybrid is the option you wish to pursue, again look for low fees and maximum availability. Some services permit unlimited contact via email or on the phone.

Many one-on-one experts work remotely nowadays, so you have a wide choice available. Similarly, go with recommendations as you would in other scenarios, or for added peace of mind, search for them on specialist industry websites such as the National Association of Personal Financial Advisors and the Financial Planning Association. Ensure you prepare specific questions that test their knowledge and suitability. Gauge their interest in providing you with a top-notch service, and of course, check their fees.

 

Roth IRA vs. Traditional IRA. Which Individual Retirement Plan is Better For You?

One day you will have to retire and to prepare for that day, you will have to make some decisions. Namely, should you use Roth IRA or a traditional one?

 

To put it bluntly, if you expect your tax rates will increase, go with Roth IRA. On the flip side, you might expect a lower tax bracket for your retirement. If that is the case, a traditional IRA is the way to go.

 

And lastly, if you really cannot make a good assumption, try splitting it. You can decide to contribute to both Roth IRA and a traditional IRA every year. As long as you stay within the limits, the IRS will allow you to do so.

Can the answer really be that simple?

Of course not. It is definitely a simplification of the answer. However, it is a helpful rule of thumb. If you want to have more information to make a decision you should consider differences and difficulties for both. So, let’s cover them.

The Obstacles

There is a reason many stay aside instead of jumping on board and benefiting from an IRA. Mainly, the amount eligibility issues and the overwhelming amount of choices. So, let’s help you with those:

  1. When it comes to Roth IRA, you are only allowed to save a certain amount (based on income parameters). And a regular one will only allow you to deduct a certain amount from taxes. So, to see how much you can save, make sure to do your research.
  2. If you are having difficulties making a decision let’s narrow it down. If you want to manage your IRA investments yourself, you can go with a brokerage firm that offers a discount. Willing to allow a service do it for you? Automation is always a good option. A robo-advisor can get it done for you.

The Differences

One thing these plans have in common is that you can save for your retirement with certain benefits regarding taxes. However, there are important differences to note.

1. Taxes

The main difference between these two versions of an IRA lies with the tax break. Both have advantages. With a traditional IRA, you can deduct your contribution from your taxes. However, with a Roth IRA, you will not have to pay taxes for withdrawals.

2. Limits

Another similarity worth noting is that both have rules and restrictions when it comes to contributions. In fact, you can contribute to both as long as you do not go over the maximum contribution. That would be $5,500 or, if you are over the age of 50, $6,500.

With a Roth IRA, household income determines the limits. So, sometimes, those with higher incomes might not be eligible to contribute in certain years.

On the other hand, the income doesn’t dictate how much you can contribute with regular IRA. It merely affects how much you can deduct from the taxes.

3. Early Withdrawals

With a traditional IRA, this is not something we would recommend. In fact, there are deterrents in place. If you are younger than 59.5 years and you will have to pay for them. Not only will you have to pay the income tax, but the IRS will take another 10% penalty. However, with Roth, you will be able to withdraw your funds early with no payments. As long as your first contribution was at least 5 years ago

4. Required Minimum Distributions

The main difference when it comes to RMDs is that, with a Roth IRA, there are no rules. If you want to keep amassing funds after you are 70, you can continue to do so. If you do not need the funds, but you want to leave a larger inheritance, Roth will let you do so.

The Verdict:

In essence, these are the high points of how these two work. The rest is up to you. Do your research, and make your choice accordingly.

 

The Evolution of the Stock Exchange

Think stock exchange and the image that comes to mind is a chaotic trading floor where multi-million dollar deals are all part of the daily routine. Whether it be the New York Stock Exchange (NYSE) or the Nasdaq in the US, or worldwide counterparts such as those in London or Tokyo, they are synonymous with big business, suits, and lots of money changing hands rapidly. However, the origins of the stock market are a little humbler. Let us take a look at how minor transactions on Venetian streets morphed into trading in British coffee houses, before developing into the financial behemoth we know today.

 

Early incarnations in Europe

 

In the times when the Venetian state was one of the most powerful and important in Europe, lenders traded debts between themselves, filling a gap in the market that bigger banks neglected. These traders then moved on to buying government debt, and by the 1300s, were market leaders – attracting the first private investors, as well as trading in securities of other governments. They would also act as go-betweens with sales information for clients, just as a broker does nowadays.

 

Belgium in the 1530’s

 

The first form of the stock exchange that we now recognize was in Antwerp, Belgium in the 1530s. Traders dealt only in notes and bonds – there were no stocks to be had. As the Dutch, British, and French governments all looked to expand their empires and trading routes in the New World, they gave charters to companies who looked for investors to finance boat building in order to transport the goods back home. These voyages were often fraught with danger due to the risks posed by piracy, bad weather, and navigational limitations. As a result, investment was extremely risky, so if the boat returned, investors would receive a proportion of the profits.

Additionally, those investing would hedge their bets by funding a number of voyages. These shares were issued on paper, so could be sold between investors. In Britain, these transactions often took place in coffee houses just a stone’s throw from the site of today’s London Stock Exchange (LSE). The basics of these practices are still followed today, with these dividends and risk-spreading strategies being the foundations of the modern stock market.

Development, early regulation and the bridge to modern stock exchanges

Investors began to receive colossal amounts for their shares, which meant – unsurprisingly – everyone wanted part of the action. The financial boom came almost overnight, meaning there were no regulations in place to protect investors. Shares were sold in preposterous and secretive adventures – an unsavory practice which, unfortunately, still exists. Needless to say, dividends were seldom paid on many such investments, leading to a severe crash, and the banning of share issues in Britain until 1825 – despite the first official stock exchange having opened in London in 1773.

Rise of NYSE

This share ban did not affect the NYSE, founded 19 years later, which has traded in stocks since it opened its doors. It rapidly developed into the world’s largest and most important stock exchange, facing little competition for the following two centuries. Even the 1920 bombing and the 1929 Wall Street Crash failed to harm it long-term, and despite many international stock exchanges flourishing all over Europe and the rest of the world, it remained firmly at number one.

It was only in the 1970s that the computer-based NASDAQ, gave it a serious run for its money, its electronic exchanges making trading more efficient and less risky. This meant the NYSE merged with Euronext, in an attempt to evolve and fight off any competition for its crown.

Although today Nasdaq has more companies listed, the NYSE remains larger than the former, Tokyo, and the LSE combined, in terms of market capitalization. Of course, these institutions continue to thrive and be pivotal influencers of the world’s economy, fully developed from their now seemingly meagre, far more localized beginnings.

 

Estimating the Cost of Your Retirement

One of the major concerns of those who are considering retirement is how to maintain a similar lifestyle to the one they currently enjoy once they put away their working shoes for good. Various financial experts cite this figure at anything between 60 and 85% of your current gross household income. What’s more, you’re more likely to be the nearer the lower end of this scale, the higher your current income. The truth of the matter is, individual circumstances are all different, so here are some concrete tips as to how to work out your own magic number that will see you living comfortably, without having to conjure up funds from elsewhere.

 

Factors to Consider

 

Just as you may do now in your working life, you can sit down and budget for your retirement by going through predicted income and expenditure for the golden years ahead. Of course, there is the small matter of how many years you (will hopefully) need it for, and at least some unexpected costs along the way – that’s life.

 

Here are some of the basic figures you should look at roughly calculating:

 

  • Put a price on the annual income you think you will need in today’s dollars
  • Choose a realistic proposed retirement date
  • Calculate your average lifetime inflation rate
  • Accurately forecast the rate of return expected on investments, before and after retirement
  • Calculate the current market value of investments, IRAs, tax-deferred savings plans and the like
  • Get an estimate of annual and lump-sum pension income from your provider
  • Calculate any future Social Security benefits due

 

Omit the following (unless you plan to continuing work full- or part-time for a period):

  • Salary after retirement
  • FICA payments

 

Once you have put together as good an estimate as possible, you can put an amount on the annual figure necessary for you to live to the means you have become accustomed to. A few formulas added to the most basic spreadsheet will allow you to adjust figures and see the results for worst and best case scenarios or unseen costs, as well as to adjust retirement dates, inflation forecasts, and income.

The only other consideration is to decide whether you wish to maintain, reduce or (perhaps) raise your existing expenditure in retirement.

 

Making the calculation a little easier

 

The above list is quite extensive. So allow us to simplify it somewhat by removing

iinflation, all returns from investments, Social Security, and pension income. Write down the value of your retirement savings as it stands, the annual income you envisage needing, your retirement date, and anticipate living 20 years after that date passes.

A quick example:

Current retirement savings amount:                     $50,000

Annual income desired:                            $25,000

Retirement date:                                           25 years’ time

Retirement duration:                                   20 years

 

Therefore, you would need $25,000 for 20 years, which equates to $500,000 by retirement date. With your current savings amount at 10% of that total, there is a $450,000 shortfall to save in the forthcoming 25 years. Meaning that you need to save $18,000 annually until retirement.

The key to getting an accurate figure is to be as objective and honest as possible, to err only on the negative side, and make rational forecasts and assumptions.

Additionally, there are many online calculators, such as the one found here.

Our last two cents

An essential piece of advice that you will always get from any financial advisor – and for that matter, anyone you discuss the topic with – is the sooner you start saving for and thinking about retirement, the better. Be wise now and seek out investments that will pay off – even if they consist of many small amounts – in your latter years. The more proactive you are about it, the more likely you are to have a bigger pot to delve into.

 

How to Choose The Best Investments

So you’ve made the decision to invest, now the challenge is to work out what to put your money into and for how long. There are numerous types of investments, which lead to other choices once chosen. Longer-term investments mean better returns, but when you need access to your cash, short-term schemes can be the only option open to you. Here’s some advice to work out which ones would work best for you and your money.

Short-term investments

  • Saving accounts – The most obvious but often provide the lowest rates of return. Having said that, they beat hiding it round the house or dropping it into a piggy bank.

 

  • Certificate of deposit (CD): Regularly insured up to the $100,000 mark, these can be made at any bank or financial institution. Interest, while not colossal, is paid regularly until maturity. When the investment does mature, you get the original deposit back, as well as any accumulated interest.

 

  • Money market funds – These involve investing in short-term bonds, and unlike other mutual funds, are generally always worth $1. They tend to beat saving account rates, but come up short against the rates of return for CDs.

Long-term investments

  • Bonds – The annual income of these is set at a fixed amount when sold. They come in various forms, and differ from CDs in that they are issued by the government or businesses, rather than banks.

 

  • Stocks – Having stocks means having a share in one or more companies. It equates to partial (if at times, minimal) ownership of a business, and the value of it fluctuates in line with the company’s success. Historically, stocks have far better returns than other investments, although firms with common stock are far more popular with investors than Class A and B stock-structured companies. This is due to the fact that the latter stock type is designed to yield voting power, rendering some shareholders much less influential when deciding upon the board of directors.

 

  • Mutual funds – These involve professionals managing your money for you and others. Money is pooled to buy stocks, bonds or other investments based on what the fund manager deems to be profitable. The problem with them is that these “experts” tend to be outdone by market indexes.

 

  • Retirement plans – These involve direct deductions from your pay to stockpile retirement savings. Some employers even match the amount you pay in, and in such cases are always worthwhile. Early withdrawals are usually not an option, or come with penalties for borrowing before maturity. However, loans can be obtained by offsetting the fund as collateral. Return rates fluctuate depending on what is invested in, but they tend to yield steady, if not spectacular, returns.

 

  • Individual retirement account (IRA) – An IRA is a tax-deferred retirement fund, meaning that only the income tax rate is deducted when money is withdrawn. They are special accounts where the account holder chooses how to invest their funds.

 

  • Roth IRA – These vary from the standard IRA, due to the fact that they are federal tax exempt if cashed in to pay for retirement or to purchase your first home. Other withdrawals can be penalty-free, such as unforeseen medical costs or education. Unless you are sixty plus, withdrawals are subject to income tax, and not all taxpayers are eligible for them, so it is worth checking.

 

  • 401(k) or 403(b) – Both of these retirement savings plans are named after the number of the Internal Revenue Codes they are detailed in – the only difference is the latter is a non-profit version of the former. They are offered by employers and can be employer-matched. It available to you, both are well worth considering.

 

  • Keogh and Simplified Employee Pension (SEP) plan – Specifically designed as a pension plan for those who are self-employed, a Keogh is special kind of IRA which allows significantly higher contributions than the regular version. The SEP is the Keogh version of a retirement plan that can be contributed to by both employee and employer.

 

Invest and Let Your Money Work for You

There are multiple reasons why investing your money is advisable. It certainly trumps low-interest savings accounts, or relying on auctioning off memorabilia collections in thirty years’ time to provide you with a much-needed windfall. If you have some money stashed away for a rainy day, read on to discover why investing it really is the smartest option.

 

Why invest?

It’s pretty simple – it increases personal wealth. It is largely hassle-free, and the rewards can be handsome. An investment in the stock market pays dividends – especially over time. It can lead to more money being available to you for retirement, travel, children, upping sticks – whatever the need may be. Now, some advice on how to do it property to maximize the returns.

Identify your goals

Whatever you’re saving for, work out what it is and the target amount that might get you there. Then have a look at what stock market investment could do for your money.

The historical average return of the S&P 500 is 10%. If you took $2,000 savings and put it into stocks, based on this rate, it would be worth $34,898.80 after 30 years. It may not put you in the lap of luxury, with a sprawling mansion on every continent, but it will certainly provide a little nest egg in the future. Now, imagine if you were to add to that fund a little as the years go by.

Suppose you have no current savings. Invest $4 daily, 250 days a year. If you’re in your early 20s, investing at the rate of $1,000 a year with the same average rate of return of 10%, it’ll have grown to over $1 million within 46 years – really.

The money-making power of compounding

Compounding is effectively the miracle of investing. Invest a little, wait and watch it grow, then flourish. For a sole $100 investment, on a 5%, 10%, 15%, and 20% rate of return, the returns on a 25-year investment are $339, $1,083, $3,292, and $9,540 respectively. In the order they appear, these rates are the equivalent to investing in a government bond or certificate of deposit, the historical average rate of return of the stock market, and varying degrees of success in more advanced investment.

These increasing rates of return emphasize the effect of compound rates. A few percentage points can multiply a long-term return ten-fold by the time a quarter of a century has lapsed. This comes to pass because as the returns from your investment start earning money themselves, they act as a domino-like money-maker, meaning over time, the increases are exponential. So, start investing today for a more financially secure future.

Investing Tips

A word (or two) of warning to avoid the common mistakes that people make when investing:

– Inaction – No guarantee exists that the markets will go up in the short term. However, doing nothing will guarantee no extra provision for retirement.

– Putting off starting – Tomorrow and the day after tomorrow cost. Compound rates mean you reap the benefits.

– Short-term investment – Only invest money short-term if you’ll need shortly. It’s best to allow a minimum of five years for an investment to yield a significant return.

– Not clearing credit card first – Credit card APR % rarely falls below 15%, so get them paid off before investing. It’d take some pretty magic numbers to reverse the losses incurred. Clear it, then invest.

– Playing it too safe or too risky – If you’re under 25, any temporary storm in the stock market can be weathered, and translate into long-term rewards. Similarly, don’t risk large amounts of money on unsafe schemes that could see you end up penniless.

– Take advantage of employer-matched pension programs – If your employer offers you a pension scheme where they match your investment, don’t turn it down – it effectively doubles your pot at no extra cost.

– Seeing collectibles and any antique as investments – A few family heirlooms or baseball card collections seldom equate to sitting on a goldmine.

 

A Short Intro to Different Types of Common Investments

Whenever you’re learning something new, it feels like you’re sailing into uncharted waters. When learning the basics of investing, you have to get familiar with the basic lingo – in order to properly navigate through the world of investing, you have to know what stocks, bonds, and other investment vehicles are.

Of course, once you master the vernacular, you’ll be able to understand how the system works and start making investments that will secure your financial future. To help you start, we’re going to provide a short overview of the most common type of investments you’ll come across along your journey.

Investing in Bonds and Stocks

Throughout history, the best way of building wealth is through stock investing. On the other hand, for more than a century at this point, buying bonds has been possibly the most secure way of making money. Now, you’re probably wondering how all of this works.

Both processes are pretty simple. Stocks are a share of ownership in specific companies. For instance, if you own a share of Google, you have a small piece of the company. The prices of stocks fluctuate depending on the fortunes of that specific company and the economy as a whole.

 

Buying bonds mean you’re “borrowing money” to a certain company. For example, if you buy some school bonds, you’re lending the money to the school district to help it build new schools. And if you buy bonds commissioned by certain companies, you’re helping that company grow its business.

Investing in Mutual Funds

This is perhaps the most popular way to own bonds or stocks – especially among the less experienced crowd. This is because mutual funds offer a ton of benefits other investment vehicles don’t, particularly if you’re not too experienced.

For instance, they are easy to master and cost far less than other investments, plus they allow you diversify your portfolio. Tier biggest downside is that they may increase your tax bill – even if you don’t sell any shares at all during the year.

Investing in Real Estate

Some people out there think that real estate investments are the only investments that make any sense from a financial point of view. While some of you probably don’t subscribe to that philosophy, there’s a number of different ways you can add real estate to your portfolio.

Of course, if you own your own home, you already have some real estate in your portfolio, but you can still start buying or renting properties in your local area. If you want to combine the perks of owning stocks and property such as land, you can buy a REIT or a real estate investment trust.

The Basic Structures and Entities

People who move past the basic investments we listed above start encountering a wide variety of different investment entities. You see, some people have never owned stocks or bonds in their lives, since they decided to invest in a family business, like a mom-and-pop shop or a restaurant.
What’s more, seasoned investors usually invest their money in private equity and hedge funds at some point in their career and other purchase shares of publicly traded partnerships through a brokerage company. These have huge tax implications, so before you start investing, you have to get familiar with their implications properly.

The Bottom Line

Seeing how there are so many different terms associated with the investment world, knowing what, when and where to invest may seem overly-complicated at first. However, once you become familiar with all the terms, and once you organize them into categories, it’s not too difficult to understand how they actually work.

 

Biggest Benefits of Mutual Funds

There’s a good reason why mutual funds are the first investment choice for the DIY investment crowd. Now, if you’re just a beginner and you want to know why mutual funds can be a good fit for your investment needs, let’s take a look at some their biggest benefits.

They are Easy to Understand

If you don’t have any experience with investing or any economics knowledge, you can still be a successful mutual funds investor. Here’s a quick explanation of mutual funds: this is a type of investment that enables you to pool your money together into one, professionally-managed investment.

They can be invested in bonds, stock, cash or any other type of asset. Simply put, mutual funds are “baskets of investments” with every basket holding a dozen – or possibly even more – of asset types, like bonds or stocks.

So the concept is pretty simple: if you buy a mutual fund, you’ll buy a basket of assets. There are many other things to know about mutual funds, but that’s the basics, and compared to other financial products, mutual funds are not so hard to understand.

Mutual Funds are Also Easy to Buy

Mutual funds are not only easy to comprehend, but they are also easy to buy since you can find them at many discount brokers, banks, brokerage firms and even insurance companies. You don’t have to leave your home in order to start investing in mutual funds.

You can simply Google around for a few minutes, and find a mutual fund agency online. Once you decide that the company is worth your time, you can simply create an account and start investing within minutes. Once again – simple as that.

They Come in Many Different Categories

After a few years, most investors start diversifying their portfolio. In some cases this means investing in other investment vehicles. Luckily, there are many mutual fund types and categories, so you won’t have to start using other investment vehicles.

For instance, you can invest in funds that cover all of the main asset categories – bonds, stocks and cash – but you also have a number of different categories and sub-categories. Another option is to venture out into specialized areas like precious metals or sector funds.

Mutual Funds are Cheap to Manage

When you compare mutual funds to other individual securities or actively-managed portfolios, you’ll see that the costs are significantly lower. When you add up the yearly fees, transaction and investment advice costs you still pay a lot less than you would for the average portfolio of stocks.

 

This is because there are far more factors that affect the costs of managing a portfolio, such as the size of transactions, the number of trading activities and different taxes. So if you’re not planning to invest a large sum of money right out the gate, mutual funds are a way to go.

They Have a Number of Uses

Last but not least, all of the benefits we listed above overlap into flexibility and simplicity. If you want, you can invest your money into one single fund, or you can invest in a number of funds – the choice is all up to you.

You have systematic withdrawals, dividends, both short- and long-term savings and a wide variety of other investment strategies to choose from. This is what makes these funds one of the most popular investment types among newbie investors.

Final Thoughts

Don’t get us wrong; there are some risks involved in buying mutual funds. The market fluctuates from time to time, and some of the advantages come at a price – some of them even have monthly fees. Nonetheless, mutual funds are a great investment for investors with limited knowledge, so if you’re still inexperienced, they a perfect for building your portfolio.

 

Buying Stocks – A Beginners Guide

Stock trading might seem complicated to the uninitiated, but it’s really not that hard to understand. Today, we’ll take you through the process of becoming a bona fide part owner of a business step by step.

Opening a Brokerage Account

 

Opening a brokerage account is quite a straightforward process. It’s quite similar to setting up a bank account and anyone can do it. You just need to complete an account application and provide proof of identification. When it comes to funding your account, you can choose whether you want to fund it by transferring funds electronically or by mailing a check.

 

Opening an account is easy, but it’s also important to choose the right broker. Whit so many options available today, how do you choose a broker that’s worthy of your money? You shouldn’t just choose the one with the lowest prices. If you are just starting your investing journey, it might be a good idea to invest in a brokerage with good customer service.

 

Furthermore, you should also consider how much money you plan to invest and how frequently do you plan to trade. Many online brokers have a $0 minimum required to open an account. If you are just starting out and don’t plan to trade frequently, you should also look for brokers that don’t charge inactivity fees. Trading commissions shouldn’t worry you too much, as this is more important for active traders.

 

Picking Stocks

 

Once you have a brokerage account set up, it’s time to start looking for stocks you want to invest in. So where to start? It might be a good idea to start by researching companies you are already familiar with.

Business magnate Warren Buffett says that you shouldn’t buy into a company because you think the stock will go up, but instead, but instead choose companies that you would actually like to own. If you listen to his advice your objective is simple – find companies of which you want to become a part owner.

 

The official annual letter to shareholders is a good place to start researching a company. It will give you an idea about the business and provide a background for the numbers. After that, you’ll most likely find all the information and analytical tools you need on your broker’s website.

 

Types of Orders

 

There are many types of orders on the trading market, and some of them are rather complex. However, you only need to understand two of them in order to be able to trade successfully: market orders and limit orders.

 

With market orders, you can buy or sell stocks at the best available current market price. The orders are executed and fully fulfilled instantly. Since the bid and ask prices fluctuate constantly, the price you end up paying (or receiving) might not be the same as the price you were quoted a few seconds earlier. It’s best to use market orders when buying stocks that have a stable price without large fluctuations.

Limit orders, on the other hand, let you control the price at which you buy or sell stocks. For example, you can set a price at which you want to buy certain stocks, and the broker will execute your order only if the price drops to that level. Limit orders are a very useful tool if you are buying or selling smaller company stocks with volatile prices.

Conclusion

 

Congratulations, you are now ready to make your first stock purchase! We hope this guide will help you start a journey of successful investing. We have one last piece of advice. If things become difficult, don’t worry. Even the most successful investors have gone through rough patches at one point or the other. You can’t control market fluctuations, so it’s best to focus on things you can control. Be mindful of the tools you are using and investing fees, establish your personal investing rules to help you keep your cool in tough times, and you are all set!

When is it a Good Time to Invest?

Beginners in the stock market believe that the timing of their purchases is relevant. Sure, starting at the wrong point might leave you with a big loss at the very beginning of your trading career. But, there are more important things you need to pay attention to.

 

You know, when you first invest, the time is your friend. If your investment was chosen well, the returns will compound over time, and add up pretty nicely, regardless what the market’s doing at the time of your first purchase.

Don’t waste your time

Instead of worrying about when you’re supposed to make the first purchase, consider for you long you plan to keep your funds in the market. This is not the same for every investment, as every one has its own risk and return degrees, and its own investing time period.

Bonds offer small, more dependable returns for a short time frame – about 3.7% on a yearly basis. On the other hand, long-term is good if you go with government bonds, as they have average returns of 5.4% per year.  Stocks are great, as their average return on a yearly basis is 10.4% but you might need to be in it for the long haul.

When do I need the money?

The more time you need to amass your funds, the bigger is the risk you can take. This means you will be able to wait out those periods when returns are bad.

If you will need your cash in the next 4-5 years, try to avoid stocks and stock-focused mutual funds. If you need it in the next 3 years, avoid real estate investment trusts and mutual funds.

 

Once you eliminate these, you only have a few options on the table. You can buy deposit certificates and individual bonds.

 

But, stocks can be really alluring for long-term goals, since the returns are as high as they are, this might be a chance to good to pass on.

When should I sell?

You chose what and when to purchase, and now you need to make the next big decision – when will you cash out? Of course, this applies to stock mutual funds and stocks.

 

Investing isn’t as easy as – sell when they’re going down, and buy when they’re going up.

You should sell in certain situations

  1. When overall problems start to hurt the growth of a company’s earnings growth.

 

  1. If you entrusted your money to a professional manager in a fund with active management, and your manager leaves you to manage someone else.

 

  1. When the stock’s value becomes too high, there’s a high chance it will crash.

 

  1. When the company starts changing its base pillars. A company you invested with is branching out into new territories it never had anything to do with? Time to cash out.

Ignore the media

We know that Wall Street is always in the news, but they don’t understand the market well, so they focus on one index. You will often hear that index went up, and the market is bullish, or that the index went down, and the market is bearish. Ignore this, and study those ups and downs.

Never forget to review

You can’t fill your portfolio with stocks and let them be. You need to review them regularly in order to get the most of them. While you shouldn’t check them every minute of every hour, once every three months, once per month, or once per week would be perfect. This way you’ll be certain that your stocks are where they should be, and that you’re not losing money.