The Motley Fool: Useful tips on investing

How to invest

Q: How does one go about investing in a mutual fund or an individual stock?

A: You can invest in most mutual funds either through an account you set up at a brokerage, and/or through the mutual fund’s parent company (such as Vanguard or Fidelity). Some funds have minimum initial investment requirements, such as $500 or $3,000. You can look up mutual-fund track records, fees and other information at morningstar.com. For many people, index funds, such as ones that track the S&P 500, are their best bet.

Choose a brokerage account that suits your needs. Fill out an application, deposit money into the account and then buy and sell shares of stocks, mutual funds and more. Note, too, that you can invest in a range of mutual funds through a 401(k) account and in funds and stocks through an IRA.

Q: When one firm buys another, does the acquiree’s stock price always go up?

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A: Not necessarily. If the company’s market value is around $6 billion, and it’s bought for $7 billion, the stock price may jump on the news. When a company is desirable, perhaps due to its products, technology, patents, cash generation or growth prospects, a buyer might be in a bidding war. But if the company’s struggling, its stock price will be depressed, and it might be acquired for relatively little.

Meanwhile, if investors think the acquiring company has struck a good deal, its own price might also rise. But if they think it won’t see a good return on the investment, its price can drop.

Falling oil and stock prices

Dear Fool: My dumbest investment has been in an energy company. It cratered by 65 percent over less than six months, and it kept falling. I hung on, thinking that if it didn’t sink any further and the dividend didn’t shrink, I would break even in six or seven years.

The Fool responds: That’s a dangerous way to think about your investments. If a stock plunges in value, you should know — or find out — why. Then assess whether its challenges will amount to a temporary slowdown or will be life-threatening. Many times, a stock will plunge for good reason, not something you want to hang on to.

Your company fell victim to plunging oil prices and took on a lot of debt. It wasn’t enough, and the company filed for Chapter 11 bankruptcy protection in 2016, essentially wiping out your hope of breaking even. Today, it’s still in bankruptcy, and…

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