Getting Started With Stock Market Investing
Getting Started With Stock Market Investing
Understanding the basics of investing before you get started
Investing is to allocate money with the expectation of a positive benefit/return in the future. This means owning an asset or an item with the goal of generating income from the investment or the appreciation of your investment, which is an increase in the value of your asset over time.
With monthly bills and debt to be paid, many people don't prioritize any kind of investing, and may neglect to invest if they don't know much about it. Stock market investing isn't necessarily common knowledge to most, and often not taught in schools. People then make assumptions, for example, that you need a lot of money in order to invest in the stock market causing them to stay away from stock market investing. However, breaking into the stock market isn't as complicated as some may think.
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The stock exchange, and how it works?
A stock exchange is where different financial instruments are traded, including equities, commodities, and bonds. The first US stock exchange was the New York Stock Exchange, which was created in the late 1700's. Now, the New York Stock Exchange isn't the only game in town. There are currently 13 stock exchanges in the United States and 16 other stock exchanges in the world. The Securities and Exchange Commission (SEC) governs the NY stock exchange. This commission was created back in 1934 after the crash of 1929. Before that, it was a self-regulated exchange, but after the crash the government decided there needed to be some oversight and created the Securities and Exchange Commission.
Issuing stock is one way that companies raise money for their business. Stocks first become available on an exchange after a company conducts its initial public offering. A company sells a share of the company to an initial set of public shareholders in an initial publish offering known as the primary market. After the initial public offering, shares are in the hands of public shareholders, these shares can be sold and purchased on exchange or the secondary market. Those who want to buy or sell stocks or bonds commonly go through a licensed broker, to trade on these exchanges.
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If you want to purchase stock, you can look into an online broker. An online broker is where you can choose to make many of the trades yourself or opt for a diversified fund that includes the kinds of stocks, bonds, and commodities you want. You can also work with a traditional broker or financial advisor. They will advise you on your overall retirement investments and wealth planning.
How can I make money from the stock market?
People buy and trade stocks to make money. There are two main ways you can make money from the stock market. Share Price Appreciation is one way. This is when you buy shares of a company at a certain price, over a period of time the value of that stock will (hopefully) increase and you'll be able to sell that stock for more than you paid for it at a future date.
Dividends are another way you can make money from the stock market. Dividends are a distribution of the company's earnings, generally paid in cash. Companies will pay dividends to share some of their profits. Paying dividends also makes the company more desirable to investors. The more people that like the company, the more they are likely to buy their stock, thereby driving up the value of the shares.
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Investing on a lower budget
Some people want to invest in the stock market but are worried that their budget can't afford it. There are some low cost options for young investors to get started with the stock market. An exchange-traded fund (ETF) is a type of security that ranks an index, sector, commodity, or other asset, which can be purchased or sold on a stock exchange the same as a regular stock. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange-traded fund is a great option for investors on a lower budget because it's an easily marketable security. This means it has an associated price that allows it to be easily bought and sold.
Mutual funds are an alternative for those investing on a lower budget. A mutual fund is a professionally managed group of diversified stocks from a number of different companies. Mutual funds are a practical, cost-efficient way to build a portfolio of various stocks, bonds, or short-term investments. These are great for new investors because you can pick an area of the stock market that you're interested in investing in, say, green energy, and there's bound to be a mutual fund that consists of companies from that sector.
Do your stock research
Investing in a stock, even if it's a small amount, is a commitment. Before you invest any amount of money into a certain stock it's important to do your research first. You want to ask yourself, how much am I willing to loose on a particular trade? You also want to research what kind of company you want to invest in and take into account how well you know that particular company. Determine what risks you're willing to take when it comes to investing in a certain company.
It's common for someone to feel loyal to a brand, so they decide to invest in a stock because of that without doing any research on that brand's stock. You want to avoid blindly investing in a stock like this. Just because you frequent somewhere or use a certain product everyday doesn't mean their stock is a good stock. When researching your stock you want to figure out how that company makes money. You want to learn about all the different components of that company to see what aspects make money for the brand.
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When to sell a stock?
People are always eager to buy stocks, but they're never sure when they should sell. When you're deciding when to sell you're stock you need to ask yourself: what do I want to get out of this investment? The answer could be how much profit you want to make or how much you're willing to lose on it.
When determining when to sell your stock, you always want to look at the company you're investing in and what they're potential growth is. By establishing your plan upfront you're taking a lot of emotion out of stock trading. When selling stocks you want to act on your research and financial plan and not your emotions.
The stock market can seem super complicated, but it doesn't have to be. Investing in stocks can be attainable for everyone, even on a low budget. If you're serious about stock investing, do your research first. Don't just buy a stock because you like to wear a certain brand or drink a certain coffee.
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If stock market investing seems to daunting for you, try investing in your company's 401k. This is a great way to invest in your future self. Once you start investing in your retirement, you might feel more inclined to learn more and be more comfortable with investing in the stock market. If you're even considering stock marketing investing, don't wait invest now! The earlier you invest the longer your portfolio of stocks can appreciate and the better off you'll be.
Katherine Fatta is the Social Media and Content Specialist at Navicore Solutions. She creates fun and informative social media posts that engage the public. She’s also the host of Navicore’s podcast, ‘Millennial Debt Domination.’ You can listen to our podcast here.