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A Brief Guide to Investing: How to get Started

A guide on how to research and determine the best investments for your money from Brooklyn Public Library.

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To Get Started

Courtesy of The Infographic Guide to Personal Finance

One of the most important things about investing is to have a good solid financial foundation. This includes having:

  • A steady income
  • Left over money, after meeting finanical obligations
  • Consider the personal things, such as marriage, children, divorce, or so on, before investing
  • Your savings built up, including emergency funds
  • You did your research before investing in anything
  • The understanding of risk tolerance
  • Realistic expectations for investment returns
  • A diversified investment plan

Researching Stocks

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Before investing, you would want to make sure that the companies you buy into have that potential. Here are 3 steps into researching stocks:

  • Step 1: Look to the Past
    • Take a look a company's past finanicial statements, which include a balance sheet, a statement of profit and, and a statement of cashflows.
  • Step 2: Look to the Future
    • When the company publishes their annual reports, take a look at their future prospects
  • Step 3: Look at Trends
    • Take look at the company's stock performance trends to see what has consistently performed well and what has improved.

To find extensive information on a company's stock, you can use these resources: 

~ Yahoo! Finance

~ The Wall Street Journal 

*You can type in the name of the company or you can use the company's ticker symbol, and example of this would be the abbreviated name of Apple which is AAPL.

Different ways to buy Stock

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There are two actions when it comes to buying stocks, choosing a broker and an order type.

There are three different types of Brokers who can help you when it comes to buying stocks:

  • Full-Service Brokers - Offer a wide range of financial planning services and advice. Charge the highest fees and receive commissions on your trades.
  • Discount Brokers - Offer to help talk you through the process your online order if you need help. They do not offer financial advice and the charge reduced trading fees.
  • Online-only Brokers - You can place orders directly whenever you want to buy or sell stock. They usually charge the lowest fees. They do not offer financial advice and if they offer, you can interact with a robo-advisor.

There are two different types of ways to order:

  • Market Order - Buy or sell stock whatever the current market price is on the trading floor.
  • Limit Order - Maximum buying price or minimum selling price that you set. This tend to costs more than market orders.                                                                                                                                          

 

Managing a 401(k)

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What is a 401(k)? It is a retirement savings plan that many employers provide. 

Once a year, to make sure that your 401(k) is still within your financial plan, check your asset allocations (your percentage of holdings in stocks and bonds):

  • If the risk tolerance has decrease, distribute more of your funds towards bonds and safe assets, and less to the stock market.
  • If your distrubution balance is off from your investment performance, sell off stock or buy additional boneds to rebalance your holdings.

Courtesy of The Infographic Guide to Personal Finance

  • When changing jobs, you can take your 401(k) with you from one retirement plan account to another. Just be aware to not trigger a big tax bill, to avoid this, request a direct rollover when you make the switch. 
  • If your new job offers a 401(k), you can move your already existing account directly into it.
  • If your new job does not offer a 401(k),you can open an IRA and request to have your 401(k) put into that. 
  • To avoid the IRS taking a mandatory 20% witholding tax, do not get the rollover check in your name.
  • If you do not get your account into another account within 60 days, there will be a 10% tax penalty.

Courtesy of The Infographic Guide to Personal Finance

         Avoid taking loans from your 401(k), even if it is to pay off debts. This is because even if you pay it back, you will lose out all of the income you earned. Also, if you leave your job whether you got fired or not, the loan would need to be paid back in full immediately or else there will be a 10% tax penalty along with regular income taxes on the account.