Perhaps the burning question for any beginner investor is: Which investment method is best? There are two investment options you can choose from: passive or active investments.
To be an active investor means you understand that not all stock market pricing move at the same rate or even in the same direction with the entire stock market as a whole. Hence you will actively single out individual stocks that you predict have the likelihood of out-performing the over-all index. Actively managed investments, such as mutual funds carry higher costs. This is partly associated with higher trading costs as well as time costs involved with researching likely stock picks and other management costs.
In a way this is similar to day trading on the stock market – if you choose to do the active investing by yourself rather than hire the services of a fund manager. You spend the time researching stocks that are likely to outperform the index and you manage your portfolio personally, buying and selling as you try to capture profits and minimize losses.
For a passive investor, he or she understand that the market index moves up or down. Having a passively managed fund that is broadly diversified across almost all the available stocks on the stock index is likely to return average returns that are comparable with the returns shown by that index.
One advantage is that passively managed funds often carry lower fees; although this in itself may tend to offer lower returns. And there are investors who favor lower returns because they believe that receiving a low return is better than risking the chance of receiving no return at all.
Again if you’re the type of investor who doesn’t wish to trust their money to a fund manager, then your passive investing option is to acquire a a broadly diversified stock portfolio which you’ll hold for the long term. Then you have the choice of allowing your stocks to simply sit in your portfolio and collecting the dividend or you can reinvest your dividend earnings back into your portfolio to acquire further stocks.
An honest understanding of your own risk tolerance level allows you to choose for yourself which investment strategy you’ll follow: active or passive investing.
Online stock trading is among the many revolutionary changes brought about by the internet. As a result, stock market trading , once the exclusive area of the rich and wealthy, is now engaged in by the common man. Investors today are equipped with cheap internet client-server technology enabling them to trade stocks anywhere in the world, at any time of their own choosing. A few mouse clicks and the client has just finished a thousand-dollar transaction online!
Two Ways To Do Online Trading
There are at least two ways to do online stock trading. You can use the services of an online broker or you can do it yourself. You must also know the two types of online brokers available: discount and full-service. Discount brokers are those licensed individuals who have direct access to the share market. They don’t give you any advice nor do research for you to get the best options. What they do is just order the stocks you want at a discounted price. These types of brokers don’t earn any commissions but they make money selling mass amounts of stocks.
A full-service broker however offers a lot more than just order stocks. They act as your personal agent in all trade-related activities. They can offer you their advice in what stocks to buy. They can create your safe investment portfolio by offering their investment advice. Commissions being their main source of revenue, they work hard to satisfy you. So they do a lot of research on the best stocks and investments for you in the expectation that you will stay with them.
Whatever the type of broker you choose, still you should make the final decisions carefully. After all, it’s your own investments. Before taking the plunge to online stock trading, do your homework first because stock trading is a complex thing. Your hunch or intuition may turn out to be misleading. Do some research yourself to find out how reliable the trading system is and find out what variables affect your online trading. Better yet, you may also want to read the quarterly and annual reports of companies that you would want to buy shares into. If you have any doubts, you can always ask your stockbroker.
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