Most people are scared of the stock market because they have seen how bad things can get when something goes wrong. Stocks fell after Enron, and even when mergers like the one between Chase and Bank One are announced, the stock market feels the effects. Even DuPont's stock prices have gone down when bad news gets out, so the stock market is, for the most part, a fickle place.
How can a new investor stay out of the stock market's traps? Research is the only way, but even that isn't a sure thing. That means that before you invest, you should get in the habit of reading the NYSE and DOW reports in the daily newspaper as well as the business section of the paper for any news that might affect the stock prices of a company you are thinking about investing in. Utility companies always make money, which is a shame, but they do it at the expense of people like you and me. Some people only feel safe investing in the electric or water company, but with all the mergers of electric companies in the 21st century, that's not even a very safe investment.
Before putting money into the stock market, a new investor needs to do a lot of reading and study. This is not something you should decide on the spot. Instead, you should take your time and do a lot of research. A potential investor should keep an eye on current trends in the stock market, but they should also look into past trends. They should look back far enough to make sure that the company stock is mostly stable. I think this will take at least five years of research, and maybe even more if there is time. For people who have been working for a few years, the trend has been toward trouble. Even the most stable companies have seen their stocks drop during recessions or when they get bad press.
A potential investor should look at the history of a company and the stock market as a whole, but they should also look at the trends of companies that have merged to see how their stock did before, after, during, and after the merger. After all, a company's future could be bad after a merger, so it's important to know what the stockholders and potential investors thought of the company's strength. The price of a company's stock shows how strong it is in the economy, and if it's not strong, the stockholders can force an unfriendly merger and take over the company.
Once you know which investment is the safest for you, you need to choose a financial advisor or broker. It's not a good idea to try to make a direct purchase because, even though it might be cheaper, using a broker will prevent or lessen the financial loss if the price drops. A broker can see the trend and suggest that you sell your stock in a certain company based on what they see. As a new investor, you can't make these kinds of predictions unless you know a lot about the stock market. The fee you pay a broker to manage your account is well worth the peace of mind you'll get from knowing that your broker is putting your financial needs first. Even if you invest in mutual funds, you should have a broker if you have stocks in your portfolio, which is what most mutual funds investors do. A broker can help you move stocks around if the market goes down.
