Engaging in speculative and short term investments

The stock market’s daily all-time-highs can spell intimidation if you’re a new investor. On one hand, you want to participate. On the other, there’s always a fear of “buying the top.”

With the abundance of information available on the web, coupled with Bitcoin and other spectacular cryptocurrency rallies, it’s no wonder many new investors feel perplexed and left out.

If you’re a new investor and you’re ready to tackle a daunting investment environment, here are a few must-dos:

  • Determine your time horizon and what your invested funds intend to be used for. New investors with a long-term time horizon may want to focus on growth and growth stocks. While these may not provide immediate returns, dividends may offer more capital appreciation in the long term.
  • Figure out what type of investment will work best for you. If you’re retirement-ready or facing large capital expenditures (for example, putting kids through college or buying a new house) you may lean toward dividend-paying stocks. Hint: There are many listed issues that pay dividends in the three to five percent range, which beat the heck out of bank rates.
  • Check out interest rates. Although interest rates have been on the rise and appear to be going higher, investors still face a relatively low-interest rate environment, which benefits stock market investors.
  • Study the fundamentals of the market, plus know the business model and other characteristics of companies you’re considering investing in. This can be accomplished by viewing long-term charts that show price oscillations around a core value (due to investor sentiment, macros, etc.)

    Don’t forget to evaluate the free cash a company has at its disposal. For example, a flush-with-cash company such as Apple can easily raise its dividend, buy back more stock or withstand a downturn in the economy.

    On the other hand, many biotechs have a high cash burn rate. Furthermore, if they incur failed drug trials, that could remain an ongoing concern.

Though investing in today’s bull market is complex, there are still ways to develop an investment plan that suits your time horizon and investment style.

Good Short Term Investment Strategies

Here is a breakdown of short-term investment vehicles and the risks associated with them:

Cryptocurrencies

  • Time Frame: 0-6 months, and longer
  • Risks: Volatile and can be illiquid

Some fortunate cryptocurrency holders saw massive gains in the year 2017 due to the unprecedented runs of coins like Bitcoin, Euthreum, and Litecoin.

Some of the key advantages of investing in crypto (in addition to the ease of opening an account) are the returns you can make from such a small investment. For instance, the value of gold rose roughly 18% over the past year in 2017. Google shares are up 24%. Some cryptocurrencies have had gains as high as 2000% in the past year.

However, 2018 has seen most cryptos return a large chunk of the previous year’s gains.

Where to invest in crypto

U.S.-based traders have a few options. Coinbase is the most popular, although if you are looking to trade more than the popular coins, Binance is another good option. See Benzinga’s key reasons for investing in crypto. For those outside the U.S., AvaTrade is a great crypto broker to use if you are looking to enter the Crypto market.

Options trading

  • Time Frame: 0-6 months, and longer
  • Risks: Timing for entries/exits is critical

Options trading is actually quite similar to trading stocks. One key difference is that an option is a contract to buy or sell a stock at a pre-negotiated price that has already been by a particular date.

Options also typically have much lower commissions than buying and selling stocks, and depending on which brokerage you are using, they are typically pretty transparent about hidden fees. You can even choose a discount brokerage account if you are looking to trim costs even further.

A major attraction to options is leverage, which gives you the ability to control much more stock via cheaper options than purchasing shares of the underlying issue. When purchasing options, you cannot lose more than your initial investment.

It’s not the same with stocks. Buying and holding stocks overnight on margin can result in steep losses if bad news comes out overnight.

Where to trade options

There are a number of options trading platforms that Benzinga has taken a look at. Take a look at some of our favorites.

  • Best overall – Ally Invest, TD Ameritrade, Interactive Brokers
  • Best for low cost – Ally Invest
  • Best for beginners – TD Ameritrade

Futures trading

  • Time Frame: 1-3 years, and longer
  • Risks: Timing for entries/exits is critical

Futures were initially designed around agricultural commodities to allow farmers the ability to hedge against the prices of their crops before bringing them to market. They have since expanded to cover a range of other assets, from gold and other precious metals to energy assets such as oil.

Leverage is an important component in futures trading. In addition, the futures market is nearly a 24-hour market, so futures can be traded at night, which is handy if you have a day job, too.

Where to trade futures

  • TradeStation – Best tech
  • Lightspeed Trading – Best for active traders
  • TD Ameritrade – Best mobile platform

Day trading stocks

  • Time Frame: 0-6 months
  • Risks: High commissions

Day trading is the act of buying a financial instrument and then selling that within the same trading day. This practice is applicable to a number of asset classes including stock, options, futures, and currencies.

This practice was once exclusive to financial firms and professionals, but with advancements in margin and electronic trading, private individuals have the ability to day trade.

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