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How to invest in stocks and funds – step by step

In this uncertain economic climate, you are fortunate indeed if you have some extra money leftover once your basic needs are met. Investing your spare cash in stocks and funds can be a wise financial decision if you go about it in the right way.

Here is a guide to getting started.

Getting Started

1. Pay down your high interest debt before you begin to invest. This advice may seem counter intuitive if you are eager to get started in the exciting world of stocks and funds. Remember, though that you are not really out to invest; you are out to make money. Continuing to pay high interest rates on credit card accounts, for example, will eat heavily into your profits.

2. Make sure that you have an emergency fund and adequate insurance. Once again, you want to make sure that you (or your dependents) can cover unforeseen circumstances and expenses without dipping into your investment portfolio.

3. Outline your budget. Itemize your living expense and calculate how much you have available for investment purposes.

4. Educate yourself about investing and follow the market for a period of time before you jump in.

5. Choose the type of investment that is best for you, offering the desired ratio of return on investment compared to risk.

Investments to Choose from

1. Common stocks are very popular. Purchasing them means you are, in effect, a part owner of a publicly held company. Before investing in a stock, review the company documents, including its filing with the Securities and Exchange Commission, proxy statement, annual report, balance sheet and statements of income and cash flow.

2. Preferred stocks are desirable in that they pay a guaranteed dividend, as opposed to common stocks, but they often have limited potential for growth.

3. Bonds are a form of promise to pay, and are issued by a corporation or a government in order to raise money to either expand the business or implement an improvement project such as building new schools. In effect, the investor is
loaning money to the body that issued the bonds, and will be repaid with interest. Interest on government bonds is usually tax free.

4. Money markets are very liquid interest paying funds. If you deal with a professional money manager, he or she may put your capital into money markets between investments so that it will continue to earn interest for you.

5. Mutual funds, considered one of the simplest and least stressful ways to invest, are attracting a great number of investors these days. They function as pools of capital contributed by individuals, businesses and organizations for investment purposes. The actual investment of this cash is done by a professional fund manager.

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Grace Chen
Grace Chen - Writer & Editor
A graduate of the Haas School of Business, University of California, which is one of the top three (3) business schools in the U.S., Grace Chen has 10 years of experience in this field and have been delivering stellar business content through her written word. She’s the chief editor of Communicate Better and has written and edited thousands of content published in various online and printed media, including the NYSE-sponsored research studies and MEC Global. Connect with Grace on LinkedIn, https://www.linkedin.com/in/grace-chen-9254ab8/