There’s a first time for everything, and that goes for investing in the stock market and exchange traded funds (ETFs). Maybe you’ve always left it to someone else or you’re a young ‘un thinking about your future. Either way, here are some steps to get started on the right foot.
The sheer number of choices that investors and would-be investors have is enormous, and taking the first step to deciding which investing vehicle to use can be tricky. Matt Krantz for USA Today has some steps to help get potential investors started and take the guesswork out of the process:
- Who Are You? That sounds existential, but it really means that you need to decide what kind of investor you are. Are you more of a long-term investor, content to buy-and-hold? Buy-and-hold investors believe that trying to pick the right stocks at the right time repeatedly is a lost cause that results in lots of trading, lost opportunities and mistakes. On the other side, there is trading, which means you’ll need to be a little more actively involved in your portfolio and take the time to monitor it closely. [How to Navigate a Trendless Market.]
- Choose Your Vehicle. Most people use either mutual funds or ETFs. While dollar-cost averaging previously worked best with mutual funds, brokerages are slashing commissions on ETFs (sometimes they’re even free) to make them useful for this, too. ETFs are also far more flexible, more transparent and, on average, cheaper than most mutual funds.
- Choose Your Investment Company. If you’re interested in trading stocks or ETFs, you need a brokerage firm. There are three main categories of brokerages, deep discounters, discount firms and premium firms. Vanguard, Fidelity, Schwab, E*Trade, Scottrade are among the many options that offer competitive prices. Research your choices to make the right one for you. [Where You Can Get Cheap ETF Trades.]
- Have a Simple Strategy. The one we follow is the 200-day moving average. If a position is below the 200-day average, it’s a signal to be out. If a position is above it, it’s time to be in. Of course, there are finer details that help to make decisions. [How to Follow the Trends.] Trend following helps you avoid performance chasing and emotional pitfalls.
For more stories about trend following, visit our trend following category.
Tisha Guerrrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.