Preferred stock, meanwhile, represents an ownership share in a company as well, only if you hold preferred shares, you're entitled to a predetermined dividend that's likely to be larger than what common stockholders receive. Furthermore, in the event of a liquidation (which is when a company shuts down operations and sells off all of its assets), preferred shareholders get paid before common stockholders, making preferred shares a less risky investment. On the other hand, preferred shareholders don't get voting rights on company matters.
Dave: 00:36 All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode ninety-eight. Tonight we’re going to talk about why you shouldn’t be a lone wolf investor. And I’m going to have Andrew kind of take us from there. All Right, Andrew, why don’t you go ahead and chat.
So scroll down for proven rules on how to make money in the stock market for both beginners and more experienced investors. And if you're tempted to buy brand-new IPOs like Zoom (ZM), Pinterest (PINS), Lyft (LYFT), and Warren Buffett-backed IPO StoneCo (STNE), first learn this important lesson on how to buy IPO stocks from Facebook (FB), Alibaba (BABA) and Snap (SNAP) first.
Before we get into it, it should be noted that as with any investment vehicle, the stock market comes with its own set of risks and rewards, pluses and minuses, some of which we’ll get into below. You should always be aware of your own comfort level with investments and not go beyond that level. A financial advisor can help you with planning and determining the right strategy based on your risk tolerance.
Growth investors look for companies whose sales and earnings are expected to increase at a faster rate than that of the market average or the average of their peers. The key difference between the growth and value philosophies is that the former places much more emphasis on a company’s revenue, unit sales, and market share, and somewhat less on earnings. Thus, growth investors tend to buy stocks that are already in favor and to pay prices that are relatively high in terms of P/E ratio. In the bull market of the late 1990s, growth investors tended to do very well, and growth returned to favor after the Great Recession.
Of course, if you really want to get a sense of a company's value and growth potential, you'll need to look at some numbers. You can start by reviewing its balance sheet, which lists its various assets and liabilities. You can access public companies' balance sheets on the SEC's EDGAR website. Similarly, you can look at a company's cash flow statement to get a sense of how it manages its money, and its income statement to get a sense of its profits and losses.
You can select a discount broker, who will simply order the stocks you want to purchase. You can also choose a full-service brokerage firm, which will cost more but will also provide information and guidance.  Do your own due diligence by checking out their websites and looking at reviews online to find the best broker for you. The most important factor to consider here is how much commission is charged and what other fees are involved. Some brokers offer free stock trades if your portfolio meets a certain minimum value (e.g. Merrill Edge Preferred Rewards), or if you invest within a select list of stocks whose companies pay the transaction costs (e.g. loyal3).
Plan for retirement. $100 won't get you far in retirement, but if you are still young, that $100 could be much more in 20 years. It's always a good idea to invest in your employer's 401(k), especially if your employer matches contributions. Most employers withdraw the money right from your paycheck each pay period. You set the amount and your employer handles the rest.
Typically, you put “pre-tax” money into these accounts, which means you don’t pay income tax on those dollars. Any money invested grows without tax until you ultimately withdraw it for living expenses in retirement. As you withdraw funds, you will pay income tax on the withdrawals. However, most people are in a lower tax bracket in retirement so pay lower rates.
Finally, the other factor: risk tolerance. The stock market goes up and down, and if you’re prone to panicking when it does the latter, you’re better off investing slightly more conservatively, with a lighter allocation to stocks. Not sure? We have a risk tolerance quiz — and more information about how to make this decision — in our article about what to invest in.
Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
Now that you know how to buy and research stocks, the question is: Why should you risk your money? After all, aren't bonds a much safer prospect? A bond is a debt instrument wherein you lend the issuer a certain amount of money in exchange for interest payments at a predefined rate and a return of your principal once the bond comes due. Though bond prices can fluctuate based on market conditions, as long as you hold your bonds until maturity and the issuer doesn't default, you get to collect the interest you're entitled to as well as get your full principal back.
In third place, earning a recommendation based on its platform alone, is E*TRADE. E*TRADE's web-based trading platform, Power E*TRADE, is a great environment for any beginner stock trader. It's easy to navigate, fast, and includes usability upgrades perfect for new investors like paper (practice) trading. Use E*TRADE's website to conduct research, watch educational videos, and read a large selection of articles covering the full spectrum of investment-related topics. Read full review
The capital gains tax rate favors long-term investments. An investor who buys and sells their stocks within a few months will face a higher capital gains tax rate (25 percent) on their profits than an investor who buys and holds their stocks for a full year (15 percent). The larger your investment, the bigger the difference. Granted, there’s a risk to holding an investment for longer, but if you’re close to that one-year cutoff, it might be worth it to sit tight for a few more weeks. INVESTING IN STOCKS FOR BEGINNERS - THE INTELLIGENT INVESTOR BY BENJAMIN GRAHAM ANIMATED BOOK REVIEW