"How do I buy a stock?"
That was the subject line of an email sent to one of our analysts recently. It turns out the questioner wanted to put her life savings into the Facebook (FB) IPO.
Fortunately, our analyst was able to dissuade her from purchasing the stock. Otherwise, here's how that could have turned out.
There Are No Stupid -- or Simple -- Money Questions
While "How do I buy a stock?" may have seemed like a simple question, just beneath the surface were a bunch of very important questions, ones that all too often people are too afraid to ask. Questions like:
- If I like a company, should I buy its stock?
- How much money is proper to devote to a single investment?
- I've earmarked money for one thing but have an opportunity to use it for something else. How do I decide which is the better investment?
It's important to ask questions -- any question -- no matter how basic/stupid/embarrassing you think it might be. That's the only way to learn. The alternative is learning the hard -- and very costly -- way.
Give Us an Hour on Wednesday to Make You a Better Investor
Educating yourself on investing is one of the most profitable investments you can ever make. The best time to start is now.
Q. I only have $500. Should I be investing?
A. Yes. An emphatic yes, in fact! With any amount of money, saving regularly and putting that money to work for you in the stock market is the key to creating wealth. Building the habit of saving and investing is the first step on the road to financial independence, but so many people put it off assuming that they have to have thousands of dollars to get started. You're in luck: Even with just $500, there are many low-cost brokers at your fingertips. With the special offers online brokers give to new customers, setting up an account will cost you little to nothing.
Q. What if I make a mistake?
A. Making mistakes is the only way to learn. If you are diversified -- meaning you've spread your money out among stocks that do not move in lockstep with each other -- mistakes won't cost you much and the education you gain will last you a lifetime.
Q. Should I sell my stock if it goes down?
A. Stocks go up and down daily as people buy and sell them. With information flying at you by the nanosecond, it's sometimes hard to sit back and do nothing. But often that's the best thing to do.
Still, sitting idle doesn't mean you should turn a blind eye to the business in which you've invested. If the dip is out-of-the-ordinary, then before you sell, you need to answer two questions:
- Has something fundamental changed with the business? If the company you are invested in decides to change its business from selling video games to selling knitting kits, for example, you should reconsider if this is the type of business you want to be in. Has there been a big shuffle in upper management? Has one of the company's biggest customers gone away? Fundamental changes in a business require investors to reevaluate that company. Which leads us to question No. 2.
- Has something changed with the valuation? If the stock price goes down and nothing else has changed, then that could mean that the valuation has improved. Investing is one of the few areas in life where something goes on sale and everyone runs away. Treat investing like you would grocery shopping -- look for deals on quality products, and when you see them, load up your shopping cart.
Get answers to your questions on Wednesday, right here!
Have an investing question you've always been too embarrassed to ask? We'll be hosting a live chat on DailyFinance.com this Wednesday, June 6, from 2-4 p.m. EDT with Motley Fool analysts live and on call to field your investing questions.
Drop any and all questions about getting started investing in the comment box below and our experts will get back to you in the chat.
The Motley Fool owns shares of Facebook.