Everyone around the world wants to have a secure future. Whether you ensure that by building up assets, maintaining properties or investing in stocks. Investing for your future takes time and planning. You need the smarts to be able to handle your finances, and a strong dedication to saving money. But if you’re on the adventurous side and want to get a different financial experience, why not try investing in stocks?
You can see reports of the different stock markets in the business section of your newspaper as well as online. Numbers, graphs, buying and selling stocks, bonds and securities; for most people, these figures are nonsense. There are articles and news features on individuals making thousands of dollars or even millions in stock investments, but there are also reports of people losing everything because of a wrong investment Pdecision. Entering the stock exchange world is a gamble because it involves money and estimations. Investing in stocks is not for everyone, but if you are considering it, it’s always best to start small. Test the waters and if things go well, continue to invest smartly and take precautions.
Stock Exchange Defined
Many new investors may think that the stock market feels like legalised gambling, which is in some ways true. It’s like placing your bets and the broker is the dealer. You randomly choose a stock that is based on gut feel or instinct.
If the price of the stock soars, you win. If the price goes down, you lose. This may be the reason why so many investors got rich during the dot.com surge and why so many people lost everything during the last recession. More new stock investors think that the stock market is a short-term investment tool that will either bring huge sums of money or devastating losses.
The whole concept of the stock exchange can be intimidating, but getting the right information can help in easing the fears. A stock exchange is defined as a form of exchange which provides services for traders and stock brokers to trade in bonds, stocks and securities. The exchange also provides facilities for issuing and the redemption of the securities and capital events that includes the payment of income and its dividends and financial instruments. Securities traded on an exchange include derivatives, unit trust and stocks issued by companies, pooled investments products and bonds.
The stock exchange often functions as a continuous auction market where buyers and sellers perform transactions at a central location like the exchange floor. A stock share is a share in the ownership of the company. Whenever a person or potential investor buys a share of the stock, that person is entitled to a small percentage of the company’s assets. The assets include everything the company owns and the earnings are all of the money it brings in from selling services or products.
You may ask, why would a business enterprise want to share their earnings assets with the public? The reason is the company requires the money. There are two ways a company can raise capital that will cover the start-up cost or to expand the enterprise or business:
- Borrow money through debt financing
- Sell stocks or equity financing
Whenever you read or hear that a company is going public, it means that the company is selling shares to either expand or raise capital.
Learning About Stocks And Shares
To properly invest, understanding what the stock market is and how it works will help you reach your goal. Again, below are some basic definitions that you need to remember before dipping your feet in the water.
Stocks can also be referred to as shares or equity. A stock is a certificate that gives a shareholder part ownership of a company within the company. The company releases or sell shares to the public to raise money. Each of these shares are a percentage of ownership in the company. There are two kinds of stocks:
- Common stock
- Preferred stock
The majority of the stock issued is common. Common shares represent ownership in a company and the claim or dividends on a percentage or portion of the profits. Investors and shareholders will get one vote per share to elect the needed board members who will oversee and tackle the major decisions made by the management. In the long-term through capital growth, it will yield higher returns as compared to other investments but carry-out most risks. If the company goes bankrupt, the common shareholders will not get any profits until the creditors, bondholders and the preferred shareholders are paid.
Preferred stock represents some form of ownership in a company but it does not come with the same voting rights. In this setup, investors are commonly guaranteed a fixed dividend. In the case of liquidation or bankruptcy, the preferred shareholders are paid before the common shareholder.
This is the person or individual who owns shares in a company. A shareholder can own a minimum of one share or as many as millions. The shareholders are given votes in the company and will earn a percentage of the company’s profits.
Stocks operate based on the laws of supply and demand. It can be said that demand is mostly based on expectations of the company’s future performance. If investors and shareholders feel the company will perform well in the future the demand will increase, but if the performance prediction is lower, the demand will go down. Predicting the demand and supply is quite difficult, thus the risk is high in this type of investment.
You also need to check the dividends. These are the benefits of owning shares in a company that is paid out upon the discretion of the company’s board of directors. Most stable enterprises pay dividends to keep the investors satisfied. It is also a good way of adding passive income generation for a long period of time.
Understanding Why You Want To Invest In The Stock Market
You need to ask yourself why you would like to invest and what will you gain from investing. Investing requires patience and dedication to researching and investigating companies for at least a few hours a week. Focus on companies and enterprises that you have some knowledge of. This will make things easier and interesting when you’re on a roll. Try to consider the overall value of the stock you’re planning on buying. Determining the value of a company comes down to future performance, revenue and cash flow.
Investing is just like gambling, don’t bet all your chips at once. You have to play your cards right. If all your money is invested in one company and it goes bankrupt, you will lose everything in one big swoop. Divide your capital and invest broadly to minimise the risk of a sudden loss. Plus, if you have a diverse portfolio, losing a small part on one of your investment will not hurt that much and you can easily adjust on the other investments. If you can create a portfolio with about 20 different stocks that are not related, it will provide different earning opportunities and can still be manageable. When buying stocks, always remember:
- Don’t buy everything at once. Spread out your investment as protection from market downturns.
- Check the stock charts regularly.
- Always check to see if the trend is going up. Look for stocks that are increasing steadily, but not rapidly. Rapid rise in price may also mean rapid downfall.
- Check trade volume. Again, it’s the law of supply and demand. A large number of people interested in trading will indicate the state of the stocks. Rising prices, but declining volume mean that the price will eventually drop because no one is interested.
- Avoid unstable stocks.
Once you’re ready, you need to contact a license broker in order to buy stocks. If you have a friend or relative that has been investing in stocks for a long time, ask them if they could recommend a licensed stockbroker or you can research a brokerage firm that has a good track record. You have to remember that any practice that deals with money will be host to scam artists who will try to dupe you, so be careful. There are different types of brokers that will suit your needs. These include discounts or online brokers, a discount broker with assistance, money manager or a full service broker.
What To Do After Investing
Don’t be trigger happy and try to sell your stocks as soon as the price rises. This will just result in disaster. Practice patience and self-control. You have to remember that good stocks will pay out much more over time. Buying and selling rapidly will only give you minimal gains because your profit will just go to commissions for your chosen broker. Hold your stock in companies with a solid market performance and steady growth. Once your stocks pay dividends, try to reinvest them to increase your earning possibilities.
Knowing When To Sell
It is ideal to sell stocks when they reach the value estimated after checking out the company and when the seed value is not expected to raise much more. If your stock seems like it won’t be hitting the target value, sell the stock when the price goes down the moving average. This will be the last chance to get rid of shares before it dips too low to be sold.
These are just some beginner tips to introduce you to the stock market world and how you can start investing in stocks. Do your research and be smart when investing!