Investment in stocks is considered risky. This is the reason why every stock brokerage firm, Investment Company or an Initial Public Offering carries a disclaimer and warning about the risks of investments in stocks.
Despite the most scientific and historical analysis, a stock may surprise you with its sudden unexpected vivacities and tantrums. This is why you have to invest even in ‘hot’ stocks with utmost caution. Sometimes they turn out to be like hot potatoes. High expectations are invariably accompanied by high risks of losses.
The best policy in stock investing is to take an intermediate course. There are certain stock investment options which deliver assured and consistent high returns over the long term and allow you to sleep peacefully too.
Moreover, you need not invest huge amounts in stock trading and create deep holes in your pocket in the event of loss. Some brokerages offer scheduled investment plans. These are customizable investment plans. You do not have to stretch your financial resources to a breaking point in order to invest in such plans. You can invest according to your budget and build a portfolio over time and make substantial savings for your future. The scheduled investment plans allow you to create a custom portfolio of stocks by specifying an amount that you can conveniently invest.
You can schedule your account to automatically buy these stocks on a one-time or recurring basis, whether daily, weekly or monthly. Scheduled investments can be easily combined with scheduled electronic transfers to make saving and investing nearly automatic. You can choose one of the several investment plans with the help of your broker. You can set up automated fund transfers from your bank account and let your broker know what to buy.
The second secure investment option is to open an Individual Retirement Account. IRA is a personal retirement plan that offers tax advantages to investors. It allows the investors to deposit a portion of their income into tax deferred brokerage account. Your contributions may also be tax-deductible.
You must, however, have an Individual Taxpayer Identification Number (ITIN) to avail of tax benefits. “An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. IRS issues ITIN to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).
ITIN are issued regardless of immigration status because both resident and non-resident aliens may have U.S. tax return and payment responsibilities under the Internal Revenue Code. Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.”
The third stock investment option is to go for Index ETFs or Exchange Traded Funds. ETFs are funds that track an index but cannot be traded like a stock. An index represents the relative value of a market by following a representative folio of stocks. For example, the NASDAQ-100 index is the combination of 100 biggest non-financial stocks in the NASDAQ market and the S&P 500 represents 500 different stocks across all markets. ETFs are ideal investment options over the long term since they are automatically diversified. Diversification means spreading your funds across different investments. In other words you do not have to put all your eggs in one basket. This way if one investment shows poor results, it will not show substantial effect on the over all performance of your portfolio. Diversification is a surer way to reduce risks. Moreover, buying the ETFs costs very little if you open your account with the right stock broker.
By purchasing the same dollar amounts of index ETFs, you can automatically track the performance of the index that the ETF tracks. This automatically enables you to obtain the same return as that index. It must be noted that the S&P 500 index has historically returned around 10% returns every year. Your investment is compounded automatically which means that regular investments, howsoever small they may be, can grow into very sizeable amount over the long term with compounding effect. It must be noted that the interest you earn is reinvested which, in turn, generates its own interest. You enjoy much greater potential gains over a long time.