Beginning Investors Frequently Asked Questions

The following is a list of some of the questions that many beginning investors and traders have or ask.
1. How do I start Investing?
2. Where can I learn about investing?
3. What are some good books that I can read to learn about investing and trading?
4. What are some good stocks to buy?
5. When should I start investing?
6. How much money can I make by investing and trading?
7. Isn’t trading stocks /stock options risky?
8. Can I beat the stock market?
 9. Should I buy stocks, mutual funds or ETFs?
10. Is there a way I can learn how to invest without risking any money?
11. My friend says the best way to get started with options is by selling covered calls – is this true? 

5. When should I start investing?

As soon as possible – the principle that all beginning investors should learn early is the ‘power of compounding’ which will allow them to put their money to work for them to make more money. While there are few absolute statements that can be made in life, one absolute statement is that ‘time will pass’. Hence, the sooner one learns how to invest and begins investing; the faster they will be able to put their money to work, and the longer it will be at work.

6. How much money can I make by investing and trading?

There is no limit to how much money one can make by investing and trading. When one works and is ‘paid by the hour’, there is a limit to how much one can make as there are a limited number of hours in the day. However, when it comes to investing and trading, once one learns how to invest and trade, all one needs to do is to harness the power of compounding to get your money to make your money, and then get the money (made by your money) to make more money, and so on.

7. Isn’t trading stocks /stock options risky?

It can be – IF you don’t know what you are doing. Successful investors and traders realize that to make money they need to treat this activity as a ‘business’ and not a ‘hobby’ – and, take the time and effort to be disciplined in what they do. Beginning investors should see ‘How to Trade’ and ‘How to Learn Investing and Trading’ for more detail on how to get started. It is just as important to keep on learning over the years as one’s experiences will provide more valuable lessons that won’t be found in books.

8. Can I beat the stock market?

Yes, but it won’t come without taking the time and effort to learn how to do it. In fact, the small investor and trader has an advantage over institutions as he/she is not bound by regulations that dictate how much of a particular stock or class of stock he/she has to own, nor when to buy or when to sell, etc.

9. Should I buy stocks, mutual funds or ETFs ?

Mutual funds are funds that are invested by a fund manager on behalf of investors; but, the small investor does not have any control over how the monies of the fund are invested. Legendary Fidelity Magellan Fund manager Peter Lynch, who achieved an annual average return of 29% for 13 years, believed that the small investor who did their own investing had a huge advantage over Wall Street specialists because of their familiarity with every-day life. His advice to investors was “invest in what you know.” For those of you who prefer the ‘hands on’ approach, investing in stocks and/or ETFs (exchange-traded funds) will allow you the opportunity to make more money than investing in mutual funds.

10. Is there a way I can learn how to invest without risking any money?

Yes, many online brokers, OptionsXpress being one of them, now have virtual trading platforms where beginning investors and traders can invest and trade with ‘virtual money’ and test their investing and trading skills without risking any real money.

11. My friend says the best way to get started with options is by selling covered calls – is this true?

This is not true – all forms of investing and trading have risk; trading ‘covered calls’ provides the investor and trader limited upside potential and much downside risk. Before trading stock options, beginning investors and traders should learn about the basics of stock options and learn about different option trading strategies before picking one they understand and like.

If you have other questions that you feel should be included above, please leave me a comment below.

Good Luck!