Learn the basics of the stock market and what you'll need to consider before investing.
- If you're a stockholder, you own part of the company. The stock market is a system in which shares of publicly held companies are issued, bought and sold. These shares provide companies with access to capital, and shareholders buy a slice of ownership in the company in exchange.
- You can't time the market. It's impossible to predict the turns that the stock market will take. With dollar-cost averaging, you can attempt to minimize risk from the ups and downs of the market.* Dollar-cost averaging is a systematic investment plan that lets you invest a set amount at regular intervals, regardless of what the market is doing. You buy fewer shares when prices are high and more shares when they're low. Buying more shares when they're "on sale" puts you in a better position to take advantage of a market rebound, since the more shares you own, the more you participate in an upswing.
- Your risk tolerance is partially based on your age. Conventional wisdom holds that younger people can take more risk because they have more time to ride out rough patches in the market, while those nearing retirement should play it safer. Figuring out if you're willing to take bigger risks for bigger gains or if you prefer to take a slow and steady route can help you allocate your assets in a way that is right for you.
- Certain types of accounts offer specific advantages. Most people who are new to investing have a specific goal in mind, such as saving for retirement or a child's college fund. There are special investment accounts designed to help you reach those goals. Traditional and Roth IRAs, as well as employer-sponsored accounts like a 401(k) or thrift savings account, help you save for retirement with tax advantages, while an education savings account (ESA) or 529 educational savings plan helps you save for qualified K-12 and college expenses with tax advantages.
- When you sell stocks for a profit, you'll need to pay capital gains tax on the earnings. Your capital gain, or profit, may be short-term (if you held the stock for one year or less) or long-term (if you held the stock for more than one year). Long-term capital gains are usually taxed at a lower rate than short-term capital gains, so it often pays to hold on to your stocks for more than a year.
The stock market can be daunting to a new investor. Luckily, you don't have to do it alone. Seeking help from an investment advisor can help you form an investment strategy that matches your goals, timeline and risk tolerance. A Navy Federal Investment Services financial advisor can help you navigate the world of investing.
*Dollar-cost averaging (systematic investing) cannot guarantee a profit or protect against loss in a declining market. You should consider your ability to continue investing during periods of low price levels.
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