Stock Trading Education
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Stock Trading Education
By Praveen Puri Praveen Puri has 20 years of trading and investment experience – including serving as a consultant to major insurance companies, banks, and the Chicago Board of Trade. He is the author ofStock Trading Riches, which details a mathematical stock trading method that isn’t exciting or “sexy”, but is extremely lucrative. Article Source: http://EzineArticles.com/?expert=Praveen_Puri
A stock trading education can really help people insure that they build wealth and save successfully for retirement. It is an important component of financial literacy, which should be taught in school.
Here are the 10 important principles that every one should know:
1. The power of compound interest. This principle is important because it shows that investing is best started early, and reckless schemes are best avoided. The “fuel” for building wealth is many years of steady returns.
2. Knowledge of taxes – especially IRAs, Roth IRA’s, 401k’s, capital gains taxes, and determining a tax basis for investments. Proper tax strategy feeds into the first principle – it allows more money to be compounded.
3. The risks of over-trading, day-trading, leverage, options, and futures. This principle also relates back to the first. Risky strategies run the risks of causing losses, which interrupt the build-up and compounding of wealth. Also, these strategies tend to incur higher costs, which dampen returns.
4. Buy and hold investing. For most people with little time or interest in investing, this time-tested, bed-rock investment principle is their best hope for successful investing.
5. Formula investing (dollar cost averaging, value averaging, and constant value investing). For those who are willing to spend a little time, these re-balancing strategies can produce significant improvements on buy and hold investing.
6. Fundamental vs. technical trading techniques. – For those who are willing to spend more time in the markets, and wish to attempt more aggressive trading, it is important to know the strengths, weaknesses, and basic techniques of these two investing schools of thought.
7. Stock market indexes and index funds. The stock indexes are important because they provide bench-marks for evaluating your investment strategies. Also, for people who do not want to invest the time and effort into active investing, investing in index funds make a lot of sense.
8. Asset allocation and diversification. – This is the most important component for determining the long-term performance of your portfolio.
9 Value vs. growth vs. GARP (growth at a reasonable price). – These are different techniques for picking stocks. Since each method has their up and down cycles, it can be worth it to learn all of them and follow a blended approach of selecting some holdings through each method.
10. Fees and commissions – Wall Street firms want to generate money from investors – therefore they continually innovate new financial products and techniques. Since expenses (fees and commissions) are the most controllable component of investment return, it’s important for investors to understand how to identify and judge expenses.
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