Stocks and Bonds and Mutual Funds, Oh, My!
There has never been a time where the individual investor has so many choices: stocks, bonds, mutual funds, exchange-traded funds (ETFs), currencies, real estate investment trusts (REITs), options, commodities, precious metals, fine art, fine wines, vintage automobiles, sports memorabilia, collectibles. There is also no shortage of hawkers telling you that now is the time for their particular investment, and that for a relatively small investment unimaginable profits are yours. The stark reality is that the novice investor, and a significant portion of experienced investors, lose money; a lot of money.
The first thing that the new investor needs to know is that every one of the above investments can make money and they can lose money. So how does one figure out where to start and with what? Treat investing as you would any other new topic that you want to learn and master: start simply. That ordinarily means start investing with stocks, because you have a single company on which to focus your education and money. A simple way to start is to pick a company from among those with whom you conduct regular business. Do you grocery shop at Safeway? Do you buy appliances or tools at Sears? What about buying clothes at Macy's or JC Penney? Maybe you're more upscale and buy handbags at Coach. Each of those retailers is a publicly traded company whose stock is readily traded on the major exchanges.
But here is where a simple stock gets more complicated. How do you know which of the above stocks is the right one to choose? Will Safeway be a better stock investment than Macy's? Will it be better than Coach? To figure out the answers to these questions you will have to research the stocks from among which you will make your choice. What kind of research should you do?
There are two distinct schools of investment analysis: fundamental and technical. Fundamental analysis looks at a company's business aspects such as revenue, expenses, debt, earnings, business growth, liabilities; technical analysis looks at stock trading statistics such as price trends, volume trends, and chart patterns. Whatever analysis technique you choose will require you to become educated so that you can develop informed insight into your particular stock investment. The good news is that there is no shortage of information with which to educate oneself. The bad news is that even after you do educate yourself you have to apply what you've learned; there's no guarantee that you'll apply it correctly.