Your Questions About Purpose Of Investing In Stocks

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Thomas asks…

Can someone help me understand investment into stocks?

I am in my 20’s and want to invest into stocks but never been taught how to so I am trying to research and learn more about it.I heard suze orman speak about people in their 20’s investing into stocks being a smart financial investment. I would like someone to explain to me in lamens terms the purpose and benefit of investing into stocks and which stocks are best to invest in. Thank you so much!

Justin answers:

You can learn some things from online sites like Investopedia.com or DaveRamsey.com or Yahoo Finance. Ideally , you need a broker with tthe heart of a teacher. You might take an adult education course via a local community college too. To learn some things, you might go online and request informational brochures from some mutual fund companies as well .A mutual fund pools money from investors to buy a variety of stocks. That way you don’t put all your eggs in one basket and your money is safer than if it was all invested in just one company.

Educate yourself before risking any money. You might even want to pick some stocks or mutual funds to watch for a while before actually investing any money-just to see how the market works.

Good luck!

Paul asks…

how do i go about investing in stocks for income supplement purposes?

i am 21 and am interested in investing in the stock market. i want to bring another source of income into my home and how everything is in the world….i always have to wonder bout my job laying me off. how do i go about doing that?

Justin answers:

You usually invest in stocks with the help of a stock broker.
There are many online stock brokers but you must choose the reliable as well as the cheapest one.

Sogotrade is the most reliable and also the cheapest.
$3 per trades
100 free trades
25 free trades when you refer
Free research tools
No account inactivity fees

These tutorials will give you a good insight:
http://ezinearticles.com/?Stock-Investing-for-a-Beginner&id=828865
http://ezinearticles.com/?How-To-Buy-Stocks-Online&id=734725

Richard asks…

What is the purpose of a stock market in a country?

Stock market i mean buying and selling shares of stocks in a corporation

What are its importances?
What does it contribute to the welfare of a country’s economy?

Justin answers:

It is important to provide liquidity for those stock owners that need to raise money for other purposes, like buying a house or to fund a college education. It also allows widespread ownership by ordinary people in the success through profit and growth of the company. It also provides an avenue for long term security in retirement. Selling stock is an important way for the company to raise funds other than through borrowing from banks or use of bonds for expansion and new product development. Foundations invest heavily in the stock of major corporations in order to be able to fund their charitable work. University endowments also enable them to educate a new generation without tuition being even higher and out of reach of ordinary people.

George asks…

Does a loan have to be used for the purpose it was taken out for?

If I am granted a loan for a house, does it have to go towards the house? Can I take that loan and use it for something else such as starting a small business or investing in stocks?

Justin answers:

Usually when you get a loan for a home, a title company is used to hold the title of your home until that loan is paid off. A set amount will be owed every month on the home. So unless you know for sure your business will bring in enough money to keep it open AND pay for the new home you purchased, then NO. Just use the money what it was intended for. If you want a business loan, then apply for one of those instead. They have different interest rates.

Steven asks…

What happens when I invest in Japanese stock on a US exchange?

Ive been very confused lately with exchange rates as I live in UK. At the minute its a great time for sharedealers to invest in US stock market as the pound is very strong. However I cant seem to grasp what happens to my money when I invest on the NYSE in a japanese company such as Toyota. How will the us exchange rate against the yen affect my investment?

A simple case study would be really helpful.

Thanks

Justin answers:

The dollar-yen exchange rate will have no effect. If you by Toyota shares from a US broker you’ll either be buying shares in Toyota USA or an ADR for the Japanese stock. In either case they are solely US investment vehicles.

However you should think very carefully about making investments through a US broker. There are US tax consequences in this that can get expensive since you are a non-resident alien for tax purposes. All dividends as well as all capital gains will be subject to a flat-rate tax (normally 30%) that is withheld at the source. That’s particularly painful for capital gains as it’s double the normal rate you would pay if you were a US resident or citizen. You may also be liable for UK tax on that as well, further watering down the profit.

If you don’t reside in the US, I would strongly recommend against direct investment in US securities. You can invest in those securities in your home country in most cases without having to pay US taxes on any income or gains involved.

William asks…

What is the function of the stock exchange?

Some people are checking the stock exchange everyday. Why? What job or business they must have been involve in for them to check the status of stock exchange on the daily basis? And I’ve read an article people investing on stock exchange, How does that work? pls. explain

Justin answers:

A stock exchange is an entity that is registered with the Securities & Exchange Commission (SEC) to provide the facilities for its members to trade securities.

The exchange provides a meeting place and the necessary equipment and services for its members to meet for the specific purpose of buying and/or selling securities.

The exchange has as one of its responsibilities, to monitor the activities of its members for strict compliance with, not only exchange rules, but with all the rules and regulations governing broker/dealers.

All the members of the exchange also have their registrations with the SEC
You can not trade on the stock exchange unless you are a member of the exchange,

Many corporations, register with specific exchanges so that their stock can be traded by the exchange members. The exchange monitors such companies for compliance with respect to the filing financial reports and shareholder information.

The general public can not trade on the exchange, they must go to broker/dealers who have exchange memberships to do their buying and selling.

John asks…

How much can I safely withdraw on a monthly basis?

I want to start withdrawing from a 457 deferred comp account. I have $129,000 in the account. It is invested 74% in stocks, and 13% each in cash and bonds. I need to know how much I can “safely” withdraw without it affecting the principal, realizing of course, that anything can happen with the market. What is a very conservative future rate of return to use for planning purposes?

Justin answers:

The current thinking is that you adjust your withdrawal rate up or down based on the previous year’s growth. But along with that, you have to factor in how many years you wish to draw on the funds. For example, if you need the funds to last 10 years, you can withdraw some principal every year. If you need the money to last 30 years, you have to be more conservative.

It’s impossible to guarantee not affecting the principal – with 74% in stocks, if the market goes down you are going to lose principal.

Most people who want their funds to last many years are planning a 3% withdrawal rate which is a conservative withdrawal rate. And if you need the money to last a long time, 74% in stocks could be too much. The risk is that if the market has a couple bad years right at the start of the withdrawal period, you are in a hole that is hard to recover from.

Remember to allow for income taxes on your withdrawals.

On another note related to one of your earlier questions, Kiplinger’s magazine has an offer for analyzing how to maximize Social Security payments. They have a web-based analysis for $50, and an analysis with a phone consultation for $125. Link is below if that’s helpful.

Chris asks…

Are minors allowed to invest in the stock market?

Im 15, and i want to invest in the stock market.
My grandpa does it..and i could learn from him what to do and everything about it..
i just think it’d be a really good way to make money and just..learn about the business world.

would it be wise to do this? like…do you think i’d be capable of doing this? i dont have a job yet..and school’s out already..
but would it be possible to still be a part of the market during the school year?

Justin answers:

You’ll have to have someone execute your trades for you – maybe your grandpa would be the person to do this with.

YES, it’s a GREAT idea to learn how to read financials, and learn about how the stock market works!

A couple recommendations . . . Go to www.mutualfundshow.com and listen to some archived showes. It focuses on mutual funds, but the principals are the same, except you don’t have to read the financials.

Also, start out with “pretend” money. You can look up stocks, have an imaginary $5,000 to start with, and just write down the date and how many shares you bought with your money. THEN, once a week, check up on them – see how they’re doing, and if they’re going up, down, paying dividends, etc. Keep in mind, MOST people do NOT make money “day trading”. Day traders tend to buy high, and sell low – not on purpose, but that’s the way it works.

Here’s a link you should bookmark until the info is memorized: http://www.fool.com/School/BalanceSheet/BalanceSheet01.htm

How to read a balance sheet. And just remember, when you’re doing the “imaginary” stock portfolio – in the real world, EVERY TRANSACTION costs money. It costs money to buy stocks, and it costs money to sell stocks. So in the real world, you’ll have to factor those expenses in, as well.

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