A Guide: How to Invest in US Stocks
Are you looking to Invest in US stocks, but don’t know where to start? This beginner’s guide will show you how to get started, what to consider before investing, and the different types of stocks available.
Investing in US stocks can be a great way to grow your wealth. The benefits of investing include the potential for high returns, diversification of your portfolio, and exposure to a developed economy. However, there are also risks involved, such as the volatility of the markets and the possibility of losing money.
If you’re interested in investing in US stocks, the first step is to decide what kind of investor you want to be. Are you looking for long-term growth or short-term gains? Once you’ve decided on your investment goals, you can open a brokerage account and begin choosing the stocks you want to invest in.
Before making any investments, it’s important to do your research and understand the company fundamentals as well as the market conditions. You should also have a realistic idea of your investment goals and how much risk you’re willing to take on.
By following this guide, you’ll be on your way to becoming a successful investor in US stocks!
Why invest in US stocks?
Investing in U.S. stocks offers many potential advantages, including the following:
-A Diversified Investment Portfolio: By buying stocks of multiple companies in different industries Vested Charges, investors can help to mitigate the effects of any one company or industry underperforming. This diversification can be achieved relatively easily and cheaply through mutual funds or exchange-traded funds that track broad stock market indexes.
-The Potential for Long-Term Growth: Over long time periods, stocks have tended to outperform other types of investments, such as bonds and real estate. For example, from 1926 through 2015, large company stocks averaged an annual return of approximately 10%, while government bonds averaged around 5% and inflation averaged 3%.* This outperformance has led many financial experts to recommend that investors maintain a healthy allocation to stocks, even though they may experience periodic declines in value.
-Attractive Valuations: At times, stock prices may appear relatively low compared to earnings and other measures of company performance. When this occurs, investors may have the opportunity to buy shares at a discount, which could lead to higher returns down the road.**
The risks of investing in US stocks.
Of course, no investment is without risk, and U.S. stocks are no exception. Some potential risks associated with owning stocks include:
-Losses During Periods of Declining Stock Prices: While U.S. stocks have historically gained value over long time periods, they do experience periodic declines during bear markets—periods when stock prices fall significantly for an extended period of time (usually defined as a decline of 20% or more). For example, between October 2007 and March 2009—a span of just 17 months—the S&P 500 Index lost nearly 60% of its value as the global financial crisis took hold.* Many investors sold their losing positions during this period out of fear that stock prices would continue to decline indefinitely; however, those who held on eventually regained their losses and then some as stock prices subsequently rebounded and continued climbing to new highs in subsequent years (a phenomenon known as “buy-and-hold” investing).
-High Trading Costs: Unlike some other types of investments (such as mutual funds), buying and selling individual stocks incurs transaction costs that can eat into your investment returns if not managed carefully.* These costs include brokerage commissions (or fees) charged by your broker whenever you buy or sell a stock as well as bid/ask spreads—the difference between the price you pay for a stock (the “bid” price) when you buy it and the price you receive when you sell it (the “ask” price). Fortunately, there are ways to minimize these costs (e.g., by using a discount broker or trading only a few times per year), but it’s important to be aware of them before you start trading.
-The Potential for Fraud: While the vast majority of stocks traded on U.S. exchanges are legitimate, there is always the potential for fraudsters to peddle worthless or overpriced securities in an attempt to take advantage of unsuspecting investors.* One way to protect yourself from fraud is to do your homework before investing in any stock, no matter how seemingly promising it may appear. For example, make sure you research a company thoroughly before buying its shares, paying close attention to its financial statements and other publicly-available information. If something doesn’t seem quite right, it’s probably best to steer clear and look for another investment opportunity.