Frequently Asked Questions (FAQs) for New Investors

Q: What exactly does “Online Investing” mean?

An online investing firm provides access to investments such as mutual funds, stocks, bonds and options to those individuals who are comfortable with their own investment decisions and invest accordingly.

Q: I manage my investments myself, do I still need a financial plan?

Yes, definitely. Here are the reasons.

1. The plan enables you to think clearly about the goals. You will be automatically driven to having a portfolio that realizes these goals.
2. The plan enables you to decrease your risks by taking a clear look at your finances. It helps you protect your family and assets in case of unforeseen exigencies.
3. A well thought out long term investment plan helps you save money. It helps you identify the opportunities where you can save tax or reduce costs.
4. With the help of a plan, you can focus on the long term while others get swayed by the short term events and market fluctuations.

Q: What does a “balanced portfolio” mean?

Your portfolio should consist of bonds, cash and equity, without going overboard in any of these. While bonds and cash give lower returns, they are prone to less volatility. You get higher returns by investing in stocks, though they are more volatile. There is no idea mix that suits everyone. It depends on individual risk appetite, lifestyle and investment horizon (long term or short term).

Q: Why is diversification so important?

It doesn’t matter what type of investor you are, you just shouldn’t put all your eggs in one basket. Even if you are focusing on growth, you can’t be expected bo buy only one company’s stock. It would be better to invest in many companies, so even if one or two companies face difficulties, you may still bank upon your other stocks.

Q: Why do large companies need my money? How can I be a shareholder of a large corporation? Do I have to face the consequences if they get sued?

If you buy a stock of a company, you become owner of a part of that company. Smallest share of the company is known as stock. Companies raise capital by issuing stocks, which also means they are selling a part of their company. When you buy a stock of the company, you have a right to express your opinion about how the company is being run and you become entitled to share the profits. Here you need to note if the company gets sued by a party, you don’t face any responsibility. Your responsibility is limited to the shares only. In other words, your stocks face the risk of getting devalued, that’s all you face.

Q: How do I choose my advisor while investing in the stock market?

In the world of investing, there is nothing which is absolutely correct or right. Once you get the basics right, you can stitch together a portfolio which matches with the type of person you are. For example, if you are passionate about real estate, you may not need to acquire a single share in your whole life, as you can easily make money buying and selling houses. To put it in other words, don’t let other advisors make your investment decisions if you don’t understand them.

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