Friday, 9 July 2010

A Few Other Trading Options

Most of the posts on this blog related to buying stocks and shares in a company of your choice. I thought it would be useful to do a little round up of the other trading options available to you. I can honestly say that the traditional method of buying stocks, thats getting an online broker and then making an investment through them for companies I identify is not the only way I invest.

You've probably heard a lot about mutual funds but maybe not so much about all index trackers. It's basically an investment fund that buys up the whole market. All the securities in a particular index are picked up by your investment. Why would you want to do this? Well there's several very good reasons. Firstly it offers you a great deal of protection. If you're buying up say the top 100 stocks in a particular index, if one of those companies goes bust you won't take the hit as hard as you would if you owned single stocks. The threat of losing your money is spread very thinly and you really avoid the problem of having all your eggs in the one basket. Just take a look at buying BP stock to see how much could be wiped off the stock price in a matter of months. All it takes it one major incident and the companies price as halved. Imagine you had all of your stocks in BP before this happened? I'm sure some of you had you poor souls!

Another major advantage is low maintenance fee. Most mutual funds require an annual fee paid for the management of the fund. The people who do the investing have to identify stocks and their time costs money. This isn't the case with index funds. There's no real research involved and so the actual management is minimal. This of course means less costs to you. You will probably still have to pay an annual fee but it will be much less than compared to a traditional mutual fund. If you're buying stocks through a broker you'll have to pay a brokerage fee for each transaction. This payment is not required when you're using an index fund.

The other reason I'd recommend you take a look at index funds as another trading option is the fact that you can set up a monthly payment and sit back and relax. No need to worry about how your stocks are performing. You don't have to watch the prices go up and down every day. If your stocks go down in price, great you pick up a few bargains with the next payment. If they go up in price, it's also great as the total price of your holdings just went up! It's a win win situation. Just take a looking at buying BP stock to see how much could be wiped off in

I'd recommend looking an index funds as a great way to invest almost in the background. You set up your monthly payment and forget about it. In many years time you'll be surprised at how much your regular payments have added up to a nice little nest egg perhaps for retirement or for that dream home you always wanted.

1 comment:

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