Stock Market 101: It's Not As Difficult As It Seems

Kelly Ann Butterbaugh

Monitor your reaction when you read the following word: stocks. Did your body grow suddenly tense and rigid with a sense of impending confusion, or were you filled with excited anticipation of carefully planned success? If you felt anything less than complete foreboding at the word, you probably already know a little bit about stocks. Either way, if you chose to continue reading, do so bravely.

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Many people view the stock market as a leviathan that can reward careful groomers with tremendous wealth while crushing unaware onlookers mercilessly. However, commercials with amusing talking babies make us wonder if it's as intense as it appears. Join me on my adventure into the stock market world for middle class Americans; it's not as hard as it looks.

Step 1: Squelch Fear

The first step into entering the stock market game is to put your fears aside. I decided that I would never know what it had to offer if I didn't take a risk. The most I ever risk at Atlantic City is my bus ticket and $20 in quarters, so I'm not a gambler. I'd rather see my money put to a more reliable use than dropped on an unpredictable stock. A $2,000 investment might mean little to some, but those are my property taxes for the year. I'm not risking that much just yet.

With a little investigation, I learned that I can invest as little as $25 a month on stocks. As this builds, I accumulate some money to play the market. I could live with the fear of losing that little bit.

Step 2: Learn the Basics of the Market

Here is the basic premise of the stock market. You purchase a share of a corporation, in a sense owning a portion of the company. If the company gains value, your portion gains value and you can sell it for a profit. If the company loses value, when you sell your portion it's worth less than you paid for it.

The tricky part is understanding what stocks you can purchase and how to acquire them. For me, the middle class American with an English degree, the direct stock option was the easiest to understand and maintain. Brokers can cost hundreds of dollars and require thousands in up front investments. Even the advertised trading companies that are aimed at the lightweight investor can eat up your profits with their fees. Direct stocks can be purchased without a broker and build upon themselves, reinvesting dividends as you move forward with your stock investment.

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Step 3: Build one DRIP at a time

The direct stock market investment is known as a DRIP, but it can be called a DRP, DSP, DPP, DPS, SIP, or SPP). Anyone want to know what those acronyms stand for? I didn't. If it didn't affect my ability to make money on the stock, I was fine calling them DRIPs. These are the stocks that allow me to invest $25 a month, owning partial shares of stocks.

To find companies that offer DRIPs, look at the Dow 30 list or the S&P 500 list. The website www.stock1.com is helpful because it offers the most information in one location. When I chose my investment companies I used beginner's logic and guesswork to build my portfolio.

I invested in the company that owns my bank, figuring that the new locations being built mean the company is on the road to success. I also invested in an up and coming company that deals with data management; something that seems like a growing business. So far, my rookie judgment is doing pretty well.

Step 4: Get the Stock

Here's where I had trouble. After doing all my homework, I had no idea how to actually purchase the stock. The path between knowledge and action was unclear. I was about to give up, but then I found the path to stock success in the most likely place - my bank. Using my bank's share-owner options, I kept rolling on my path towards basic stockholder options, and learned that it wasn't very difficult to do.

Comments

July 20, 20110 found this helpful

What bothers me the most about the markets is the fact that they go up and down on a whim. A little bad news and they plunge south. A little good news and they fly high. I thought that the company and/or the products were what I was investing in, not the political climate.

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