The first question to ask yourself when considering buying a stock index is whether you will do it yourself or whether you will hire a broker.It is much like buying and selling a home in that you can do it yourself if you know what you’re doing, but if you want a professional who is familiar with the market and its dynamics, you might want to consider using a broker’s services.
If you do choose to use a broker, you’ll have to start by opening an account with a brokerage firm.This means you will be signing an agreement with detailed terms governing how your transactions will be handled, among other things. Read this agreement carefully. If there’s something you don’t understand, call up and ask. Don’t sign until you understand why every clause is there. You’ll learn a lot about investing by understanding the agreement; some terms are written for your benefit, some are written to benefit the broker.You can always ask the broker for ideas about which stocks to buy, but remember that the broker makes money whether the stock goes up or down, so you will want to have a good idea what the market is doing for yourself.The hardest part about any kind of financial advice is knowing whether the advice is being given for the benefit of the adviser or the client.
Although you can choose to invest by yourself, investing in stock index funds is fairly cheap considering the fact that there isn’t much to manage, so you wouldn’t be saving much by going it alone anyway so you may want to start out by using a broker.When it comes time to actually place the trade, you won’t necessarily have to deal with your broker or any other human being for that matter. Many discount brokerages will let you trade online by yourself, where your orders are routed along with those placed by human brokers.
As a beginner, you’ll want to start slowly. No stock will guarantee an income for retirement.That is why investing in stock index funds has such a big advantage over investing in individual companies’ stock or even in mutual funds.They are much “safer” since stock index funds track the overall performance of an index like the S&P 500.In fact, investing in stock indexes is often referred to as “passive” investing.There are two huge advantages to investing in stock indices.First, a passive stock market mutual fund is much cheaper to run than an active fund because you can eliminate all the analysts’ salaries.In cutting costs this way, the savings can be passed along to investors in the form of higher returns.The second main advantage of stock index funds is that they perform better than actively managed funds. Some investors find it incredible when they learn that most mutual funds are flops, at least when it comes to generating returns for their shareholders. In 1998, for instance, 85 percent of all mutual funds that were set up to beat the S&P 500 failed to meet that goal.
Once you have opened an account with a stockbroker, entering a buy or sell transaction is fairly straight forward when using most online stockbroker accounts.All that is required is the ticker symbol, the number of shares you want to trade and a decision whether you want to trade at the market price or want to specify limits.Your broker will respond by letting you know the current bid (the price current buyers are willing to pay) for that particular index and ask (sellers are requesting) price. If you confirm your trade, you will probably pay between the bid and ask.At this point you need to take careful note as to what information you submit.Some mistakes can be very costly. Confirm that the stock index fund corresponds to the one you really want to buy or sell. Make sure that you didn’t type 1,000 shares when you really meant 100 shares.
Once you’ve submitted your buy, just sit back and let the market run its course.If at any time you decide you want to sale shares or buy some more, just submit a sale or buy.It’s that easy!