Can you improve your investment return by buying your own stocks online? Advice for beginning investors.
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Quick question: what have you invested in and why? If you can answer this question right now, great! You're well on your way to becoming an expert investor.
Do you have money in the market? Who buys stocks for you? If you're letting someone else invest for you, you may be losing money!
This is doubly important in the time of the coronavirus. Starting in March 2020, a lot of new investors hit the market for the first time. While some are cautious and careful, others see the wild weekly swings in the market as an opportunity for quick profit.
Should you join them? That depends on what you want to achieve!
Should You Buy Stocks?
Suppose your day job is making guitars. You probably know a lot about the right kinds of wood to use, what you can get out of various types and sizes of strings, and what kind of body shapes make which sounds. You probably also understand the business and customers, like who buys which types of guitars, the cohorts of customers, and who is willing to spend what for various levels of instrument quality.
You know your business.
If someone came to you with a great business opportunity to make and sell more guitars but didn't know the difference between an acoustic or an electric guitar or why you want nylon strings in one situation and bronze in another, you might question that opportunity. After all, someone who doesn't understand a business is going to have more trouble making money than someone who knows it inside and out. (Though see The E-Myth Revisited to learn why merely knowing how to do a job is no guarantee of business success.)
The same rule applies to your investments. If you've socked your money away in pharmaceutical companies but you know the petroleum industry, how will you distinguish between a great stock and fool's gold?
Can a Broker Pick the Right Stocks for You?
A lot of people use investment brokers to manage their money. The idea goes that investing is complicated, so why not leave it to the experts? (You're a wonderful exception; you're already learning how to invest on your own.)
What these people don't realize—or don't have confidence in knowing—is that stocks represent real companies in real industries, and all of the things they understand about their business and customers apply to the stocks they might buy.
A broker might have your best interests in mind, but a full service broker will charge you for work they do on your behalf. You're paying someone else to buy what they think will make money, based on whatever criteria your broker finds important.
If your broker's goals aren't your goals—if your broker makes more commission money by trading certain funds or by making frequent trades—you may be losing money.
Why You Should (Sometimes) Buy Your Own Stocks
What's the solution? Can you really make wise investments by buying stocks yourself? Yes!
It's easy to start investing on your own; pick a discount stock broker and set up an an account. Then buy an index fund like the S&P 500 fund, and be patient. (Seriously; investing $1000 can take half an hour and earn you a nice return year over year.)
There's more to it than that, but that's as simple as investing can be, and you can do that! Once you've taken that first step, you'll know more than most people, and you will have started to take control of your own investing future!
There's a big difference between buying an index fund and picking your own stocks. An index fund is diverse because it's spread out among lots of stocks, and it has pros and cons to go along with that. It's also easy and doesn't take much time.
A stock requires research and knowledge. That means an investment of your time before an investment of your money, but that also means you can narrow your search to stocks in industries you understand. Maybe that's exercise equipment or small semiconductor companies or luxury travel—wherever you have an edge in knowledge and experience.
With time and patience and care, you can find good opportunities, use great tools to measure those opportunities, and take advantage of opportunities in a way that your broker can't: in line with your specific goals, at your schedule, with the expertise you have.
Buying stocks online can be safe, and if you're cautious and do your research (you've already started to learn how the stock market works), you can watch your wealth grow. It'll take time and patience, but you're making good progress.
Most of all, you've trusted your money to the person who knows your goals the most and who has your best interests most in mind: you. What better time to start than now?