With the interest rates on certificates of deposit at ridiculous lows — below 1% at my local bank, which usually has higher returns than the big-name banks — what’s a cautious investor to do? I still dream of the heyday of 5.5% interest rates on 6-month CDs, when I laddered CDs to my heart’s content. But after the 20% down payment we made when purchasing our home last year, it took a while to rebuild our savings account. Now that we’ve got a healthy emergency fund, I’m looking to invest some of our extra cash.
The highest interest rates on CDs right now aren’t even touching 1.50% — so what makes me think the stock market can do better? The historical data does show that the buy-and-hold technique brings bigger returns.
One of my fears about investing in the stock market is that I’m not a buy-and-hold kind of person. If I see an individual stock I hold shoot upward and making a decent profit, I’m going to want to sell it and put the money in the bank. In the end, I’m just too conservative. What I really have to think about is finding stocks that offer solid dividends, which are good to hold long-term. Re-invest those dividends and your holdings grow.
Looking at the historical figures, stocks have provided the greatest rate of return on your investment. But beginners need to know a bit more about how to invest in the stock market — and I would be a beginner. These are some of the most basic things to know.
What Is Stock?
When you purchase shares, in essence you are claiming part ownership of that particular company. These share represent your “stock” in the business — when business is booming, you profit. When it’s not, you’ll share in the losses by seeing the stock price go down. The ownership of shares is mostly registered electronically nowadays, although stock certificates may be still issued by some companies (paper certificates are no longer required).
This is the most well-known and lucrative technique for investing in the stock market. It’s a long-term strategy meaning that once you purchase a stock, you don’t sell it for a period of time. This is the easiest way to weather the ups and downs of the market over time. Otherwise, unskilled beginner investors (like us!) would have trouble “timing” the market in order to turn a profit. Buying and holding stock also reduces the cost of fees paid to brokerages for every transaction.
Research Before Buying
You wouldn’t want to invest your hard-earned money with a bank that has shady business practices or seems financially insolvent, right? The same goes for businesses in which you’re interested in buying stock. Some companies are consistent earners, with the stock prices steadily trending upward. Then you have those that go the opposite way — prices spiral downward over time, and it’s hard to judge where the “bottom” will be. Call up the stock’s charts and look at how its been performing over time, in monthly or yearly increments.
You can also learn more about specific companies by searching for news articles. Maybe a specific pharmaceutical company is being heralded for its newest medication, or another company has invented a life-changing technology. This is a good indication that the business is strong and continuing to grow. Alternately, bad news, such as lawsuits and debt, should serve as warning signs that the company’s stock isn’t a good investment.
There’s much more to picking stocks, but these are the basic things to know before you throw your hat — and hard-earned money — into the stock market. Perhaps sometimes soon I’ll find a stock that tickles my fancy and start investing.