Stock Investing Guide For Beginners

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Stock investing is where most investors make most of their investment profits. If you are new to the stock investing game and have not yet honed your money management skills, this simple investing guide will help you make your first stock investment by simplifying things for you.

A stock investment can take more than one form. You do not need to open a brokerage account and pick your own stocks to invest in. Instead, you can invest in stock mutual funds and leave the money Stock investment and stock picking to investment professionals.

Stock funds offer diversification and professional money management at only a moderate cost to you. To keep costs low, invest in no-load stock funds.

Now, you'll need a basic investing guide to assist you in picking stock funds to invest in. To broaden your diversification, you may want to invest in 2 or 3 different funds. There are basically 2 main criteria for picking stock funds.

First, does the fund invest mainly in large-cap, mid-cap, or small-cap stocks? Second, does it emphasize growth stocks, value stocks, or invest in both (this would be labeled as a "core" or "blend" fund)?

You now have 9 basic stock investment categories (3X3, above) to chose from. For example, you might start investing with a LARGE-CAP, BLEND stock fund. Then, you might add a MID-CAP, GROWTH fund for diversification.

Now, some definitions. A large-cap stock is one like General Electric or Wal-Mart. To get a stock's market capitalization (cap) you multiply the number of shares a company has outstanding times the market price of each share. This (the market cap) gives you the total market value of the company. Mid-cap stocks are stocks in companies with a smaller total market value, and small-cap stocks have even lower total market value.

Growth stocks are a stock investment in companies that are growing sales and profits at a faster than average pace. Investors buy growth stocks for price appreciation (hoping the stock price will rise significantly) ... not for dividends.

Value stocks are a stock investment that is more modestly priced (lower P-E ratio) and/or pays a higher dividend vs. most other stocks. They are often bought because they appear to be under-valued (maybe a bargain).

Thus, a LARGE-CAP BLEND fund invests in stocks with large stock market values ... both growth and value stocks. A MID-CAP GROWTH fund invests primarily in growth stocks of smaller companies (in terms of market cap).