- How Many Stocks Should Be in a Portfolio?
- How to Invest in High Yield Certificates of Deposit
- Advantages of Top-Down Investing
- How do I Create a Stock Portfolio for Paper Trading?
- What Is Convertible Redeemable Preferred Stock?
- The Advantages and Disadvantages of Investing in the Stock Market With Personal Finances
Investing in the stock market carries risk, but making preparations before you invest your money can help moderate that risk. You'll need skills such as patience, the ability to learn about companies and a way of tracking stock prices to give yourself the best chance of success. You can test these skills yourself, without putting any actual money at risk.
Avoid Real Risk
If your goal is to test your skill in the stock market, either because of an interest in the markets or before you invest for real, there's no need to take financial risks. Select the stocks you want to buy and use newspaper or Internet price quotes to determine how much you'd need to pay for each share, or how much you'd earn from selling. Even if your skills aren't ready to manage your own investments without help, it will be an inexpensive lesson to learn.
Keep an accurate set of records to note your simulated stock transactions. These records can be as simple as a ledger in which you note the date, share price and total cost or earnings from each purchase or sale you execute. Your records can also include the amount of money you set out to invest, and the value of your stock portfolio at any given date. Accurate records will allow you to produce simple graphs that show the rising and falling value of your stock.
Include Fees and Taxes
Fees and taxes are realities of investing in the stock market. Include them in your calculations when you test your skill through virtual investing. Short-term income from capital gains (the profit you make from selling stock, minus any losses you realize in the same year) is taxed at the same rate as your earned income. Broker fees apply to each transaction and vary widely depending on the broker you use. Check with an online or local stock broker to determine a typical transaction fee, then apply this to each purchase or sale you execute virtually. Accounting for taxes and fees will reduce your profits, but they give a more accurate view of your ability to generate investment gains.
Test Yourself Over Time
As with any investment, the results of testing your skills in the stock market can be affected by luck. Stock market investments usually perform best over the long term. Your results after one day, or even one month, are unlikely to reflect any real skill in selecting stocks with potential for growth. Test yourself over an extended period of time for the most accurate assessment of your skills. The longer you can produce imaginary gains, the better chance you'll have of making a profit when you decide to invest for real.
- Creatas/Creatas/Getty Images