Investment Strategy and Trading Securities

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Investment Strategy and Trading Securities

Buying and selling securities and other investments isn’t as easy as picking up a basket of groceries. How investment instruments are bought and sold and how much work goes into tracking their value are important strategic considerations as you invest.

Buying and selling

Will you have to work through a broker, and what kind? Full-service brokers provide investment counseling and research along with executing trades in different kinds of securities. Discount brokers, including many of the online brokerage services, simply execute your trade. As the name implies, discount brokers take less of your investment dollars in fees and commissions, which may be an attractive benefit if you can do the work of researching investments yourself.

Minimum investment

Many kinds of investment instruments have minimum investments—from the $500 minimum balance you need for a money market savings account to the $10,000 you need to get started in many corporate bond issues. Mutual funds can be more flexible, but most of these require you to make minimum investments as well.

Fees and charges

Even discount brokerages charge fees and commissions for processing your trades. Investing in financial products such as mutual funds and variable annuities may involve sales and distribution costs known as loads. These products are likely to also have investment management fees and administration costs. When using insurance products as investments, you must also consider the costs of insurance. And many kinds of tax-deferred investments involve fees as well as tax penalties for early withdrawal.

Maturation

Debt securities like bonds repay your principal upon a certain date on which they are said to mature. Maturity periods can be decades long. Even if you can sell your security before it matures, the length of time before maturity will have an impact on how easy it is to sell and how much you will get for it.

Tracking value

How will you know how your investments are doing? For stocks and many mutual funds, the answer can be as easy as picking up the newspaper or subscribing to an online investment information service. Others may involve extra work, like researching a company’s bond rating or performing calculations to determine the lifetime value of a bond issue. How much effort you want to put into tracking value may determine which investment choices you are comfortable with.

As you can see, one of the first strategic considerations you need to make is whether you have the knowledge, energy, or inclination to execute a detailed investment strategy, or whether you’d prefer to have someone else—like an investment advisor—do all the strategizing while you relax and wait for the quarterly reports.