Investing in the US Stock Market

US investment options

There are many investment products that you can choose to invest in the US market. Here are the top 4 options:

Investing in Individual Stocks

Investing in individual stocks is easy. You just need to set up an account at a stockbroker and then you can begin buying and selling stocks as soon as you fund the account. Individual stocks tend to move up and down a lot more than mutual funds and are thus considered more risky. However, you can mitigate some of the risk by setting up your own portfolio of several (or many) different stocks.

Investing in Stock-based Mutual Funds

Although you can invest in some mutual funds through major banks and some directly online, most investors make their mutual fund investments using a brokerage so they can get a larger choice of funds. Mutual funds are a large basket of stocks picked and managed by a professional money manager and tend to be less volatile than individual stocks. There are many kinds of mutual funds, ranging from index-based funds to precious metal stock funds.

ETFs or other Hybrid Funds

ETFs are a special kind of mutual fund that are traded like individual stocks on the major stock exchanges. ETFs have three- and four-letter ticker symbols like stocks and are bought and sold on that basis just like stocks. ETFs and other hybrid funds are usually designed to focus on one particular sector of the stock market and often use derivative instruments to create leverage.

Call and Put Options

Options are a way to invest in stocks with great leverage. A call option gives you the right to buy 100 shares of a stock at a particular price (strike price) until a specified time (expiration). A put option gives you the right to sell 100 shares of a stock at a particular price until a specified time. If you are holding calls you will profit as the stock goes above the strike price; if you are holding puts you will profit as the stock goes below the strike price. Because of their time-limited nature options are risky and should only be used as a part of a diversified investment portfolio.

Source: eHow.com

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