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With interest rates on savings accounts at record lows, many people are turning to investing in stocks to earn money on their savings. The amount that can be earned by investing in stocks is much higher than what can currently be earned with a savings account, but the risks are greater as well. Before you begin investing your money in the stock market, you should educate yourself about buying stocks and the type of stocks available. Here are some important things that you should know about investing in stocks.
Research The Company
When you purchase a stock, you are essentially purchasing a stake in the company that the stock is attached to. If the company does well, the stock increases in price. If the company does badly, the price of the stock will fall. To reduce the risk of losing a lot of your money, you should research the companies you are interested in before you decide to purchase the stock. When most of the information you can find on a company is negative, you should avoid purchasing that stock because it will probably be dropping in price soon.
Diversify Your Investments
When investing in the stock market, it is important to make sure that your investments are diversified. That way, if one company or industry begins to experience problems, it will not wipe out your entire investment portfolio. There are a number of different ways available to choose differing stocks. Some people research the top 10 stocks on E*Trade to figure out what the best stocks currently are. Other people choose one or two stocks from various industries to invest in. Whatever your method of choosing, it is important for you to do some independent research before making your decision and not just rely on the advice of “experts.”
Be Prepared To Hold Your Holdings
Chasing stocks and trading daily is usually not a good strategy for the average investor. Pursuing this tactic often means that you are buying when the price begins to fall and selling just before the price is set to rise. It is impossible to know what an individual stock is going to do day to day, so you should choose stocks that are good prospects and hold them for a while so that they can gradually increase in value. Holding onto the stocks that you have purchased also reduces the fees that you must pay to the brokerage for making trades.
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