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Investing 101 with basic information for beginners

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Investing 101 with basic information for beginners

To the average person, investing on the stock market is a daunting task reserved for the skilled, the wise and the brave. However, investing on stocks is not that different from starting a business or buying your first car. You can never take out the risk factor on any investment, this include stocks. You need to do your homework, study the market and make informed and calculated decisions. When you enter the market, you either invest your money on stocks, mutual funds, bonds or on other investments such as annuities and certificates of deposit (CDs).

First you need to open a brokerage account to be able to buy and sell stocks, mutual funds and bonds. Buying stocks means being part owner of a company. The more stocks you buy, the bigger your share on the company's profits, assets, etc. A mutual fund on the other hand offers more diversification than stocks. It is a pool of stocks or bonds that is managed by an investor or an account manager. When you buy a share of a fund, you become entitled to all the stocks or bonds the fund owns including all of the fund's investments gains and losses. Meanwhile, bonds are more like loans. The issuer of the bonds is the lender of the loan. When you purchase a bond, the issuer of that bond will pay you the predetermined interest for each year until you reached the maturity date. Usually, big companies and the government issues bonds to fund their various projects and endeavors.

There are, however, some things that you should avoid when investing. First is not diversifying your investments. You should not limit your investments on only a few companies. Splitting your money on different companies will have an impact on your stock portfolio. But you need to be careful of being over diversified. You don't want to end up earning less and paying more for brokerage and transaction fees. Second is that when you invest on the stock market, you need to understand that your investment needs time to reap in acceptable and satisfactory profits. Third, frequent trading does not equate to success. Instead, what you should do is look for a great company, invest and sit back and wait for you investments to grow fruit. Finally, don't make decisions based on unsupported information, speculations and out of fear.

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