Buying and selling securities involves risk, whether you are dealing with individual stocks, mutual funds, exchange traded funds (ETFs), certificates of deposit (CDs), an individual retirement account, (IRA), a 401k, bonds, precious metals like gold, or other investment vehicles. All of those acronyms can be confusing. You might wonder, how do I decide which stock to buy, or what are the advantages of an IRA versus a 401k? What is a Roth IRA? There are many sources to find answers to these questions, but it is possible to do some practice trading without spending any money. I found a virtual trading site where you can buy and sell, just like when you use online sites like www.etrade.com or www.scotttrade.com. The site is:
http://www.howthemarketworks.com/trading/index.php
You can choose how much money you start with, how often you trade, how much you buy, which stocks you choose, and more. This way, if you lose money, it is not real money, it's just virtual dollars. But, if you make a lot, you need to realize it's only virtual money, not real money in your account, so it's a double edged sword. I have had my account for about 18 months. In that time, my portfolio has risen 41.42%, whereas the rise of the S&P 500 stock index has been 21.48%. Too bad it is not real money. Some of my biggest winners have been Home Depot (HD), Procter and Gamble (PG), Google (GOOG) and Weyerhauser (WY). Biggest losers have been Bank of America (BAC) and Citigroup (C). Banks used to be conservative investments which were dependable and not volatile. But, since the housing collapse and the stock market crash of 2008-2009, these companies have struggled significantly.
One thing that helps with keeping a portfolio stable is diversification. Do not put all of your eggs in one basket. If you have a portfolio that contains shares of Google, Apple and Amazon, it is not diversified. Those are good stocks, but if the technology sector takes a hit, all 3 of these may take a hit. A diversified portfolio will have investments from different sectors. For example, you could have a retailer like Wal-Mart, a food company like Kellogg's, a tech company like Google, and a durable goods manufacturer like Whirlpool. If you don't want to buy individual stocks, a mutual fund can be purchased which does the diversifying for you. A mutual fund would be made up of several different stocks. Mutual funds or exchange traded funds are great ways to invest for people who want to take less risk, and they can be bought by those who do not want to monitor individual stocks. But, be aware that these investments sometimes come with hefty fees, so conduct research before buying. Often times an exchange traded fund has a significantly lower fee than a mutual fund, according to Kiplinger's magazine.
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