Q&A for beginners in the stock market (Part 2 of 2)

Should I invest in individual stocks or mutual funds?

Unless you are a seasoned veteran, it’s better to invest in pooled funds than individual stocks.  There’s danger in picking stocks in your first years because stock prices rise and dive and create tension that you should avoid. Trading stocks should be fun, exciting.

Pooled funds can be either mutual funds or exchange traded funds.

• Mutual funds invest in a pool of stocks for a pool of investors.  These are actively managed funds that employ fund managers who are in charge of making investment decisions. As an investor, you’ll typically pay a notable fee in exchange for that professional, hands-on guidance.

• Exchange traded funds track indexes such as the S&P 500. They are passively managed. Their fees tend to be considerably lower.

What are the benefits and dangers of investing in the stocks?

First, the danger: volatility – the mood swings of rise and fall of stock prices. The market can be up one day, down the next, and then back up again.

Next, consider the benefits: the market has historically spent more time up than down, and those who are in it for the long haul tend to come out ahead. In other words, investors who stuck with stocks made more money, actually much more, than those who left or stayed with bank savings accounts.

So, what should I do when the stock market plummets, besides being scared?

Don’t react when the stock market takes a tumble. Remember that you don’t actually suffer a loss until you actually sell. In the meantime, it’s just a paper loss. Sit tight and wait for the value of your stocks to come back up. Remember too that a losing trade is part of stock trading. You can mitigate losses of you diversify.

What is diversification?

Invest in several stocks,  in various market segments (say, energy, biotech, and retail). You can do this by buying ETFs.

Should you buy penny stocks if you don’t have enough funds?

Penny stocks (priced below $5) seem appealing when you don’t have enough funds but they are risky. They’re hard to research. You may want to read our separate article on penny stocks.

The Bottom Line On Stock Investing:

I recommend it. You should try investing in stocks. It’s rewarding if you know what you are doing. Follow our tax and stocks tips at www.asianjournal.com to get you going. Good luck.

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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.

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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies.  He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].

Victor Sy, CPA, MBA (retired)

Victor Santos Sy, MBA. CPA (Retired) Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation. * * * He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits” that’s available at Amazon. Readers may email tax questions to [email protected].

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