Video:How to Invest in Stocks

Transcript:How to Invest in Stocks

Hi, I'm Kevin Schmitting for About.com. In this video you will learn how to invest in stocks.

Facts About Investing in Stocks

401k Plan: A 401k plan is an excellent form of investment for your future, specifically speaking - your retirement .Being enrolled with your company's 401k plan means that a portion of your paycheck will be allocated into a retirement savings account. You can invest the assets of this account into stocks, bonds, and mutual funds. Employees choose from a selection of investment options offered by their company.

Your choices should match your investment goals. Many companies offer employees a 401k match program, where for every dollar the employee contributes the company will match a percentage. The downside of the 401k is that you are limited to choosing the investment options that your company has made available. The money entering the account will not be taxed, until the time of withdrawal. That being said, assets in the 401k plan need to remain in the account until retirement. If withdrawn earlier, tax penalties will ensue.

More Facts About Investing in Stocks

Traditional IRA: An IRA, which stands for Individual Retirement Account is much like the 401k, but rather than operating investmentsthrough your employer's program, you're operating investments independently.The individual investor freely selects and manages stocks in any manner. This gives you the ability to set your own level of involvement with your investments. There is a range of risk when managing an IRA.The level of risk corresponds to your approach: whether being conservative, moderate, or aggressive.

With the Traditional IRA your risk and return is variable - this is a benefit to the IRA. An additional benefit with the IRA is that you are not limited in your selection of stocks.Your investments grow tax-free within the account and can be withdrawn at age 59 1/2. A disadvantage is that you are limited to the amount with which you can invest into the account each year.You can open your IRA account at your local financial institution, bank, or credit union. You can even open an IRAaccount online in a quick 15 minutes.

Other Options for Investing in Stocks

Brokerage Account: With a brokerage account, you as the investor initiates the buying and selling of stocks, bonds and mutual funds through the service of a broker.The broker will buy and sell your investments as you direct him or her for a commission fee.You can choose a traditional broker who will help you to guide your financial choices.Or if you prefer to be a more self-directed investor, you can choose a discount broker whose commission fee is much lower.

The disadvantage to the Brokerage Account is the commission fees for brokers. The Brokerage Account is beneficial due to the extreme flexibilty in terms o f investment choices. Also, you can withdraw from your taxable account assets at anytime.To get started visit a brokerage firm, or visit a financial website like Schwab.com.

Investing in Stocks

DRIPA DRIP or Dividend Reinvestment Plan means that the dividend that is earned from investing in a certain company,which is typically received as cash, is instead automatically reinvested into that very equity.A drawback from this form of investment is that you do not get a diverse investment as you would with a mutual fund.

The benefit to this form of investment is that there are no commission fees. To begin, research to see which companies offer this type of investment. Then connect with a broker to make your investment purchase and to set up your Dividend Reinvestment Plan.

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