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Before investing in the American Stock Exchange, know the most important 3 steps

Personal investing is one way to grow money while you’re on the journey of life. Well-known American investor Warren Buffett defines investing as “the process of putting aside money now in the hope of receiving more of it in the future.”

Investopedia publishing article It guides the reader who wants to invest in the American Stock Exchange to the first steps that must be followed to increase the return on investment and reduce costs to a minimum.

First, before you start any kind of investment, specifically in the global financial markets, you must answer this question:

What type of investor are you?

When you open a brokerage account, the broker will ask you about your investment objectives and the level of risk you are willing to take.

Some investors want to take an active role in managing the growth of their money, while others prefer to “pick up and forget about stocks”. Investment in the American Stock Exchange is in stocks, bonds, Exchange Traded Funds (ETFs), index funds, and mutual funds.

There are 3 steps before investing in the American Stock Exchange:

1. Choose the right broker

The easiest way to be able to buy shares on the American Stock Exchange is through an online stockbroker.

Opening an account with an online trading broker is as easy as creating a bank account.

The process requires only filling out the account opening form, and then documenting the account through proof of identity and address (sending a copy of the identity card and an invoice showing your name and address).

Then you deposit the amount you want to start investing in your account and you can choose the payment method that suits you from among the many payment methods provided by the broker.

Many traditional mediation services include financial advice for retirement and health care.

Many brokers also offer an automated advisory service, and recently they have added online more features, including educational materials on their websites and mobile apps.

It is useful to compare well before making this decision and check the ratings of the brokers in the place where you want to open an account.

2. Commissions and fees

You should review the trading fees and account management fees if you have a balance above a certain limit.

In most cases, your broker will charge a commission every time you trade stocks, depending on how often you trade, and these fees can increase and affect your profit. Investing in stocks can be very costly if you frequently jump in and out of positions, especially with a small amount of money available to invest.
Remember that a transaction is an order to buy or sell shares in one company. If you want to buy 5 different stocks at the same time, this is seen as 5 separate trades, and you will be charged for each.

Now, imagine that you decide to buy shares of those five companies for $1,000. To do this, you will incur $50 in trading costs – assuming the fee is $10 – which is 5% of your $1,000. If you were to invest a thousand dollars in full; Your account will be reduced to $950 after trading costs. This represents a loss of 5% before your investment has a chance to profit.

If you sell these 5 stocks, you will again incur the costs of the trades, which will be another $50. Making a round trip (buying and selling) on ​​these five stocks will cost you $100, or 10% of your initial $1,000 deposit. And if your investments don’t earn enough to cover this, you lose money just by entering and exiting positions.

3. Diversification and risk reduction

In short, by investing in a group of assets, you are reducing the performance risk of an investment which severely hurts your overall investment return. You can think of it in financial terms like “Don’t put all your eggs in one basket.”

In terms of diversification, the biggest difficulty in doing so will come from investing in stocks. As mentioned earlier, the costs of investing in a large number of stocks can be detrimental to the portfolio. With a $1,000 deposit, it’s almost impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies – at most – in the first place. This will increase your risk.



Reference-www.aljazeera.net

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