- 1). Divide any investment money you have into short-term and long-term categories. The stock market should be seen as a long-term investment, so you should not invest money you expect to need within five years in stocks or stock mutual funds. Instead, invest that short-term money in safe instruments like certificates of deposit and money market funds at your local bank.
- 2). Determine what percentage of your long-term money you wish to devote to the stock market. Everyone's tolerance for risk is different, so it is important to evaluate your own situation and determine how much you want to devote to stock market investing. If you are a young worker with decades to go until retirement, you might want to invest a bit more in stocks. If you are nearing retirement, you might want to scale back your stock market exposure.
- 3). Subscribe to one or more financial publications, or read them at your local library or on the Internet. There are many financial publications on the market, including the Wall Street Journal, Investor's Business Daily and Barron's. Read these publications and look up stories on some of the companies whose products you use.
- 4). Contact several large no-load mutual fund companies and request a prospectus for some of their stock funds. For educational purposes, it is best to request a prospectus for a large and well-diversified stock mutual fund, as well as one for an index fund. An index fund simply buys all of the stocks in a given stock market index, while a managed fund hires stock pickers to choose companies they feel will perform better than the market as a whole.
- 5). Review the prospectuses carefully, including the information about short-term and long-term performance. Be sure to look at all the performance numbers, and compare them to the relevant stock market indexes. This comparison information should be part of the prospectus. Also review the fees and expenses associated with each mutual fund--managed funds tend to be more costly to own than index funds, since they must pass the cost of the money manager on to their investors.
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