Even if you don’t make enough money to invest in the stock market, you likely heard about GameStop’s recent surge. However, this sudden rise in market value was more a phenomenon or fluke than anything else. In fact, some individuals say the rise in GameStop’s shares is actually related to a flaw in short-selling.
If you want to learn more about short-selling’s economic risks, check out this CNBC article.
Essentially, a group of young investors on Reddit saw that Wall Street investors were short selling GameStop stocks. These investors pooled their monetary resources together to buy GameStop stocks. This way, Wall Street investors who were short-selling would incur a loss.
However, buying stocks will not make you filthy rich, especially if you invest in companies like GameStop who barely stay afloat. Instead, your safest option is to buy into a mutual fund or set up a 401K or an IRA.
The reasons mutual funds are excellent choices is that these funds pools together resources from many different investors into one stock option. They also allow for buying several different stocks for a diversified investment portfolio. This lets individuals buy stocks in companies that are normally expensive. It also has the safety precaution that if one stock decreases in value, then one or more stocks in the mutual fund likely will have retained or increased in value. Thus, the stocks retain the overall value of the mutual fund.
On the other hand, a 401k is a company sponsored retirement fund that allows employees to invest a certain amount of their salary into a bank account where their company will match the contribution based off a certain percent calculation. For example, for every dollar an employee puts into their 401k, a company may put fifty cents into the 401k. Similar to 401ks, IRA are retirement accounts that allow individuals to contribute money to a bank account. Unlike 401ks, though, IRA contributions are tax-deductible. This means that as long as the person opening the IRA is does not have company-sponsored retirement account. Also, both 401ks and IRAs give individuals a tax deduction when they take money out of either retirement account.
If you do buy individual stocks, stick with blue-chip stocks like the S&P 500.
These types of stocks will help your money gain value in the long-term over the course of several decades. Even small investments in these types of stocks can guarantee a return on investment by the time you retire.
If you’re new to investing in the stock market, create a brokerage account with a financial service company like SogoTrade, TradeKing, Charles Schwab, or E*Trade. These companies charge commission fees but are well worth it because of the financial tools they provide. For those on a budget, SogoTrade and TradeKing are the ideal choices since they charge the lowest commission rate on trading. On the other hand, Robinhood provides zero-commission charges on trades but will gain money by sending their customer orders to whichever Wall Street firm will pay the most to process the order. Unfortunately, this means you will pay the highest rates with Robinhood when actually buying the stock itself.
Investing in the stock market now can yield great benefits down the road, like paying off a new home or eliminating your student loan debt. Furthermore, selling stocks is a great way to make money in the future – it’s just about waiting for the right moment to sell.