It is often the case that when people hear about stocks or the stock market, they picture a lot of graphs and numbers that don’t make a lot of sense. However, stocks aren’t all about boring numbers. A lot of people make an honest living out of dealing with stocks and you can as well.
Read this intro to stocks to understand how investing works and how it’s more than just your 401k.
Why You Need This Intro to Stocks
Investment is the surest way to build wealth, whether it’s getting the money you need for retirement or for that vacation to your dream destination. Savings and budgeted spending, though important, cannot provide enough to make a difference. Investing in stocks has proven to be one of the best ways to meet any of your financial expectations and hopefully, this guide will help you do just that.
Defining Stocks
When deciding to invest in the stock market it is important to start out by understanding what stocks are. Stocks are a representation of ownership in a company. This means that when a company is listed in the stock market, it is selling little pieces of itself to the public as a publicly traded company.
As such when you acquire stock, also referred to as equities or securities, you now own a piece of that company. You make money in the stock market either from selling the stock for more money than you bought it at or if the company pays out dividends to shareholders.
Understanding the Stock Market
Many people do not have a clear understanding of how the stock market works. Some people feel like its gambling. However, it can only be considered gambling if you pick a random stock without taking the time to do the necessary background checks and make good decisions. There are a number of ways to go about deciding which company to invest your money.
You could choose a more established company that serves as a safer bet in terms of market stability, however, you will have to pay more. Alternatively, you could choose a startup which might grow faster in value, but carries more risk. Nonetheless, it is up to you to ensure that you are aware of the workings of the company you plan to invest in.
Things to look out for include; the balance sheet that reports the company’s assets and liabilities, an annual report that includes the company’s activities and future goals, the profit margin in, the return on equity as well as the firm’s debt. All these factors allow you as an investor to weigh the pros and cons of each prospective company.
Make a Budget
Now that you know what stocks are and how the stock market operates, the next step is to look at your own financial situation to see how much you are willing to spend. You can only do this by assessing your tolerance for risk.
Factors such as your age, your source of income as well as your financial goals may go a long way in affecting your risk tolerance. For example, a 25-year-old might be more open to making more aggressive investments as compared to someone in their late sixties.
In addition to risk tolerance, share prices also affect your budget. Since many companies and brokerage firms already have a set minimum you can purchase while trading, you may have to adjust that budget to fit your purchase. Or, you could invest in a company that has a lower minimum but with promising returns.
How to Invest in the Stock Market
If you have a 401k, you may already have invested in the stock market without your knowledge. However, for individual investments, you must start with an investment platform by opening a brokerage account. This account is what allows you to buy and sell your stock.
When you get your brokerage account, you need to find a broker. You can opt for a company that offers advice on how to invest and keeps with market trends for you as well. This is a great way to enter the stock market for beginners as they are guided through the whole process.
However, these services do come at a substantial fee. An alternative that has recently entered the market is the use of Robo-advisors which are computers that use an algorithm to establish the best investment to make based on your goals and risk tolerance. With the stock market functioning primarily online today, this method has proven to be easier and cheaper.
When to Invest in Stocks
Now that you have your account ready, it is necessary to know when to invest in the market. Market trends affect the prices of stock which in turn affect your return on investment. One example of this is when the market is in a recession, also referred to as a bear market, stocks tend to go down in prices.
As an investor, you could take the opportunity to purchase the stocks while their value is low. Another trend to look out for is the industries that thrive when the economy is doing well such as airlines and retail stores because people are spending money. The market value for these companies tends to be higher during that period.
Feel free to check out websites and blogs that provide stock market news. Having this information will help you make better choices when deciding what the best time to invest is.
Manage Your Portfolio
After opening your account and investing in the stock market you need to manage your portfolio. You can do this by diversifying your stocks and assessing stock performance. To diversify means being able to invest in different companies, both startups and well established to see returns.
Constant assessments and evaluations are important to ensure that you can monitor the growth of your investment and if the need arises make changes in your investments.
Sit Back and Watch Your Money Grow
You now have all the information required through this intro to stocks to take that first step to fund your dream vacation. Remember to do your research, make smart choices and wait for your money to work for you. Keep reading our blog for more information on travel, fashion, technology, health, fitness and lifestyle tips that you will surely need.