So you've decided to invest in the stock market. Historically, investing in stocks has handily outperformed investing in bonds , Treasury bills , gold or cash over the long term.

How much $$$ do you need to start investing? - May. 13,

In the short term, one or another asset may outperform stocks, but overall, stocks have historically been the winning path. But there are so many ways to invest in stocks. Individual stocks, mutual funds, index funds, ETFs, domestic, foreign - how can you decide what is right for you?

This article will address several issues that you, as a new or not-so-new investor, might want to consider so that you can rest more easily while letting your money grow. You may be eager to get started so that you, too, can make those fabulous returns you hear so much about. But slow down and take a moment to contemplate some simple questions. The time spent now to consider the following will save you money down the road.

What kind of person are you? Are you a risk-taker, willing to throw money at a chance to make a lot of money, or would you prefer a more "sure" thing? Would you sell it all in a panic? The answers to these and similar questions will lead you to consider different types of equity investments, such as mutual or index funds versus individual stocks.

If you are naturally not someone who takes risks, and feel uncomfortable doing so but still want to invest in stocks, the best bet for you might be mutual funds or index funds. This is because they are well-diversified and contain many different stocks. This reduces risk - and doesn't require individual stock research.

Should you invest in funds, stocks or both? The answer depends on how much time you wish to devote to this endeavor. Careful selection of mutual or index funds would let you invest your money, leaving the hard work of picking stocks to the fund manager.

Index funds are even simpler in that they move up or down according to the type of company, industry or market they are designed to track. Individual stock investing is the most time-consuming as it requires you to make judgments about management, earnings and future prospects.

As an investor, you are attempting to distinguish between money-making stocks and financial disaster. You need to know what they do, how they make their money, the risks, the future prospects and much more.

Therefore, ask yourself how much time you have to devote to this enterprise. Are you willing to spend a couple of hours a week, or more, to read about different companies, or is your life just too busy to carve out that time? Investing in individual stocks is a skill, which, like any other, takes time to develop. It is best that you not be exposed to only one type of asset.

For instance, don't put all of your money in small biotech companies. Yes, the potential gain can be quite high, but what will happen to your investment if the Food and Drug Administration starts rejecting a higher percentage of new drugs? Your entire portfolio would be negatively impacted.

It is better to be diversified across several different sectors such as real estate a real estate investment trust is one possibility , consumer goods, commodities, insurance, etc. How much to have in these different sectors and classes is up to you, but being invested more broadly lessens the risk of losing it all at any one time.

If you are just starting out, think seriously about investing most of your money in a couple of index funds, such as one tracking the broad market e. Maybe adding one that tracks small companies e. A portfolio consisting of those three would give plenty of diversification, provide the steadier performance of large companies and be spiced up a bit with both international companies and small caps. If you are investing in individual stocks, a portfolio of 12 to 20 well-chosen ones will give you plenty of diversification and probably will not be too many to follow regularly.

However, you will need to ensure that you fully understand each company, from its businesses to its risks.

If you plan to invest in only stocks, make sure to spread the funds across different sectors such as health care, technology, small cap and big cap. If you don't have the time or desire to pick as well as follow that many stocks, consider investing in a mixture of index funds and individual stocks. Another consideration, especially if starting out with limited funds, is that investing in 12 to 20 stocks may not be feasible. Therefore, having the majority of your money in funds would provide the stabler returns they tend to generate.

Adding in maybe a half dozen individual stocks could give your portfolio an extra kick. Once you've determined the shape of your portfolio, it is time to invest.

Find a broker you are comfortable with, either an online broker or one with a local office or both. Call and talk with this person if necessary.

Then fill out the paperwork, deposit some money and open an account. After deciding what to buy, don't buy all at once: What if you invested all your money just before a market downturn? Being in the red that quickly wouldn't do much for your confidence. Plan to take several months to invest all of your money to minimize any market timing risk.

Finally, remember to set aside time each week to review or catch up on the news for your investments. As your experience grows, your asset allocation decisions will probably change. You could adjust your portfolio on a regular basis, say every year or so, by selling some of one type of investment and buying more of another. You could also adjust your portfolio by adding additional funds to those areas in which you want to increase exposure. These additional funds can be used to expand the number of securities you hold or can be added to existing holdings.

Do this on a regular basis and before you realize it, you'll have a substantial portfolio that will help fund your retirement, pay for a second home or meet whatever financial goals you set when you started your investing journey. Before you jump into the stock market, spend some time thinking about what you want to accomplish and how to do that while staying within your risk tolerance levels. Also consider how much time you have to devote to investing.

Doing this before committing those first dollars will go a long way toward protecting you from the emotional roller coaster of investing first one way, then another, never really knowing why you are changing your mind.

Careful thought before and during your investing career will do more to help your results than trying to chase the latest hot stock. After all, it's your money - you should know what you are doing with it and why. Dictionary Term Of The Day.

3 Easy Ways to Invest in the Stock Market (with Pictures)

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Eggs in One Basket It is best that you not be exposed to only one type of asset. A Portfolio for Beginners If you are just starting out, think seriously about investing most of your money in a couple of index funds, such as one tracking the broad market e. A Portfolio with Individual Stocks If you are investing in individual stocks, a portfolio of 12 to 20 well-chosen ones will give you plenty of diversification and probably will not be too many to follow regularly.

Time to Invest Once you've determined the shape of your portfolio, it is time to invest. Keep Adding As your experience grows, your asset allocation decisions will probably change.

The Bottom Line Before you jump into the stock market, spend some time thinking about what you want to accomplish and how to do that while staying within your risk tolerance levels.

Start your own investing adventure with the help of some simple guidelines. It can be rewarding to invest in well-performing companies, but single stocks can present some downside for your portfolio, too.

Robo-advising is a good way to start investing and take advantage of compounding interest. Learn five of the most important questions you need to ask if you are a new investor planning on starting an investment program in Take these three steps to achieve and maintain diversification in your investment portfolio. Periodically updating your investment plan helps keep you on track to achieving your long-term goals.

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Here are three key areas to review. This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation. If you can't figure out why you're not achieving the returns you want, these behaviors might explain why. An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over No thanks, I prefer not making money.

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