How to choose stocks and funds after opened an IRA?

Have Opened an IRA and have money in the account, you've been in half-way successful in investment, and the other half - is buying funds or stocks. People usually opened accounts but don't know what to do. And also those people own SIMPLE IRA and follow the S&P 500 stock increasing 31% last year, while others even not moved. The reason is that they develop a good habit of saving, automatically transferring a portion of their wages into their accounts, but not using them to buy any stock funds.

Remember, your IRA is a retirement investment account, not a savings account, so only buy stocks or funds will grow your income.

The difference between stocks and funds

Buying a stock is like buying a packet of crisps.

Buying a fund is like buying a snack gift pack.

The advantage of buying only chips is that you're lucky if it's delicious, but it's bad if it's hard to eat. Therefore, the risk of buying a stock is higher.The advantage of buying a snack pack is that there are so many tricks inside that there will always be some good food. Therefore, buying a fund is the average of a bunch of stocks, even if there are a few not good, do not worry too much. The difference is that there may be only a few dozen snacks in the snack pack, and the fund usually has about 500 stocks. Snack packages are usually more and more expensive, but the fund's pricing is not based on the number of stocks, according to supply and demand, so even by hundreds of stocks, the price is only in the tens to hundreds of.

How do I choose stocks?

For stocks, it is recommended to buy the company you are using.

Why? Companies need money to run, either by lending or issuing shares. The loan not only has to repay the principal, but also interest, and there is a time limit for repayment. And issuing shares is a very cost-effective way, people buy stocks is free to borrow company money. People want to lend money to the company, the company can effectively use this money to make the company bigger and stronger, so that the stock will rise, achieve a win-win situation. So there's nothing to buy for companies that you don't feel like. Buffett, a stock god, is known to make a lot of money, and he also admires the idea of buying his favorite company.

He likes to drink Coca-Cola and comes with a bottle for almost every meal, so he buys a lot of coke stock, and his total share percentage is in the top three in his portfolio.

If you still feel that the options are too large, you can narrow them down by industry. There are 11 types of stocks by industry, which are subdivided into cyclical, sensitive and defensive:

Cyclical is saying that the boom and bust of these industries are followed by the economy, the economy is good, the economy is bad.

Defensive is an almost immune economic cycle, after all, these products and services are not good or bad.

Sensitive is somewhere in between, and while it will follow the economy, he won't be too bad for the economy.

Stocks pick something you like. As you get more and more money, you'll find that buying some funds saves you and can diversify your investments.

Don't be afraid that there are a lot of stocks in the fund from the company you have not used, after all, life is to keep trying new things, otherwise how can there be unexpected surprises?

How do I choose a fund?

The fund is divided into Mutual Fund and ETF, of a similar nature.

Most Mutual Fund is a fund manager who actively buys and sells shares in a fund, so the fees are more complex and high. Most ETFs track indices, are passively managed, and no one buys and sells it frequently, so the cost is low. The funds you buy in Aover or the IRA are basically ETFs. Now that you have decided to buy a fund, you have to choose the type of fund, although the choice is still a lot, but you only choose the general direction.

For example, you can choose by industry, you can also select by company size (large Large Cap, mid-size Mid Cap, small Small Cap, microMicro), you can also select by country or region (US, developed developed countries Developed Market, Emerging Market, one country), or by investment style (growth, value value, Mix Blend), or even more so, to directly mimic the large-cap S.P. 500 (the 500 largest companies in the United States), and so on.

Some general rule:

Industry: The United States has no industry, the most powerful is technology and finance, from the historical point of view of the technology industry performance is also quite good.

Company size: Large companies are generally familiar with everything, and all aspects are stable companies, so Large Cap will give you stable growth. Mid and Small Caps have high elimination rates, but the companies that can stay are dark horses, and if they are given enough time to grow, their growth may be more impressive than that of the big ones. If it's young people, don't forget Mid and Small Cap when you buy Large Cap in a 401k or IRA retirement account.

Regions: Mainly to buy developed countries, although the developing countries have more room for development, there may be amazing growth, but in your portfolio put a part of the future is enough, after all, developing countries are not only China and India, such as the future of countries, there are a bunch of you have not even heard of the name.

Investment style: Young people generally like growth because there is enough time for him to grow and ignore some short-term risks. Historically, Growth growth has been better than Value's in the long run. People nearing retirement tend to prefer Value value, a fund with a lot of undervalued stocks that don't expect him to rise anywhere in the short term, but the value is at least stable.

Imitation of the S.P. 500: Every day you hear the market plunge by 3%, or a few hundred points, basically the S.P. 500 or the Dow Jones Dow Jones Index. The total index of the 500 largest companies in the United States, and Dow, the total index of the 30 largest companies in the United States. Just when we went to school, the teacher said what the average score of our class was. Instead of casually comparing a classmate's score (a company's share price), the teacher would use the class average score (index index) to make a benchmark comparison with another class.

Why buy funds that mimic the broader market? Because it's the same as the big market, it doesn't require human management, so the cost is very low.