The stock market is volatile. We've all heard stories about people getting rich, and others going broke, by investing their money in the stock market. However, if done correctly, investing in the stock market can be a good alternative to real estate, property, and other forms of investment.
Here are a few strategies you can employ to make wise decisions when investing in stocks.
1. Max out your 401k
Most employers offer a 401k match, often between 3%-6%. For you, this match is free money. In other words, your employer will chip in a dollar for every dollar you invest into your 401k, up to that percentage point. How is the company able to afford giving away free cash? Believe it or not, this procedure was mandated by the government as a way to incentive people to save more money for retirement. The other great thing about investing in your 401k is that it has significant tax benefits over other investments.
Make sure to a choose an investment plan that is in line with your target retirement. Typically these plans will be stock-heavy starting out, and gradually shift towards a greater percentage of bonds and less volatile securities.
2. Invest in Penny Stocks
If done correctly, investing in penny stocks can help you church a huge profit. For those who get rich from penny stocks, their success may seem natural. However, there are many ways to take advantage of these stocks. Penny stocks are typically known as stocks trading under $5 a share. Because these stocks are smaller and lesser known than big stocks, they require more research and understanding before you invest in them. The upside is that the stocks has significant growth potential, given their starting point.
3. Invest in your IRA every year
Behind your 401k, your IRA is the second best (and safest) place to put your money for retirement. You can contribute a maximum of $5,500 per year, which can go into a traditional IRA or Roth--in which tax is removed first. By investing in large stock indexes included in an IRA, you can guarantee a solid increase in capital over time. In fact, it has been shown that even some famous investors would have been richer had they invested their money into stock indexes rather than into the buildings and projects in which they invested.
4. Consider hiring a broker
Especially if you don't have the time to research and learn how to proficiently trade stocks, working with a broker can be a favorable option. This is perhaps the simplest way to trade stocks. There are tons of known stock brokers, just find one that you trust and set up a meeting.
5. Consider more than just the price of the stock
When it comes to the true value of a stock, price alone is not sufficient for determining whether you should buy or sell it. Instead, look at the company as a whole. Consider the revenue, performance, and profits. Many times, the big picture can tell you a lot more than just the stock itself. For example, even if a stock seems expensive--if the company continues to make strides and increase profits, the stock may be relatively inexpensive. By considering the economic status and performance of the company, you can get a more accurate view as to whether their stock may rise or fall.