The Basics on how to Buy Stocks and Bonds
Have you ever noticed that stock tips seem to come from everywhere? In the gym, and a family get-together, on TV and especially through your email. Generally speaking they tout ‘can’t miss’ moneymaking opportunities that you of course need to purchase ‘right away’. If you have a little bit of experience you may find that even your own research turns up the occasional stock that looks like the perfect opportunity.
Bonds, which are often seen as a lower risk accessory to someone’s stock portfolio, certainly have a place in any portfolio but the question that many consumers have is about how much of their savings should actually be invested in bonds.
While we won’t try to tell you that this blog will suddenly make you a stock or bond specialist, we put together some basic information about the two that should definitely make choosing them and figuring out how much to invest a little bit easier. Enjoy.
How to buy Stocks.
Simply put, professional investors follow many different trails when hunting down a stock to recommend. They use computerized screening programs and old-fashioned feet-to-the-pavement fieldwork to do it. Much of what the ‘ professionals’ find is simply information that’s available on a company’s website. Since these companies are publicly traded most maintain a section on their website made for investors with financial data, reports about business conditions and so forth. These sites, open to anyone, can be quite valuable to say the least.
That being said, many times with stocks the more important thing is to avoid making mistakes. A number of those mistakes are outlined below.
- When buying stocks that seem to be doing extremely well, use caution. In many cases these companies are getting towards the end of their run and their stocks may be priced much too high.
- Impulse buying is a definite no-no when it comes to stocks. A good investor will have plenty of patience and indeed those with patience gain an edge because the longer a stock is held the less likely it is to be a loser.
- When it comes to bulletin boards, emails, Internet chat rooms and even some radio and television ads, it’s best in most cases to simply ignore them and use common sense.
- Knowing when to get rid of the stock, even if it’s one that you think is one of your best, is very important. The fact is, you may love a stock but it’s never going to love you back.
- If you’re keen on jumping on a stock’s bandwagon you’ll be interested to know that, most of the time, you’ll be too late. Better to purchase into a company with a superior earnings history and a good track record.
How to buy Bonds.
Probably the best way for the average individual to own bonds is to own them through a mutual fund or an ETF. These actually hold ‘baskets’ of bonds and are superior because there is no competing for individual bond sales. Of course some of the most well-known bonds are those that are issued by the United States Treasury. These include short-term bills, notes, longer-term bonds and TIPS, an inflation protected bond. Buying government bonds can easily be done through the Treasury Direct program and there are also a large variety of funds that specialize in treasury bonds.
Of course there are also other types of bonds that you can use to diversify your portfolio including a wide variety of foreign government debt investments, corporate bonds, municipal bonds and also junk bonds. As far as investing in bonds, here are some of our best pieces of advice.
- Since individual bonds don’t actually trade like stocks it can sometimes be difficult to find their current market value. The factors that influence a bond’s value our inflation, time to maturity, whether a bond is callable and interest rates. Use these well to determine your bond choices.
- There are two types of risk with bonds; default risk and interest rate risk. Of these two, interest rate risk is probably the worst. The fact remains however that the main reason to invest in bonds is because they have very low risk.
- When it comes to service fees, bonds get hit even worse than stocks. What that means is that you have to be aware of the charges that you face with particular bonds and purchase those with the lowest fees.
As we said at the beginning of this blog, these are just the basics. However, this blog alone will give the novice stock and bond investor a good head start. We hope you enjoyed this information and found it valuable. Please make sure to come back and see us again sometime soon for more valuable financial information on a wide variety of topics. See you then.
Filed under: Investing
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