Stock markets date back centuries, with origins in Antwerp in Belgium as early as the 15th century. But it was not until the early 20th century that we saw the first version of the modern stock exchanges we have today. And in the past half-century, stock markets have boomed with the onset of all kinds of complex financial instruments.
What Is Stock Investing?
In its simplest form though, here is what it means. The ownership of companies is divided into units called shares. A stock market is a platform where these shares, also called stocks, can be bought. Stock markets are operated across the world. Not all companies’ shares can be traded though, only those that are listed on the stock market.
The value of many stocks changes second by second because there are many investors in the stock market. Investors buy these stocks with the hope of their price increasing. Companies also pay dividends to investors, which can be a nice source of passive income.
How To Invest In Stocks?
The key to successful stock investing is picking out the right stocks. These picks can be based on three types of analysis:
- Thematic: The economy and policies can affect stocks For example, if renewable energy gets a policy push, like these days then these stocks’ potential increases. Or if inflation rises, then consumer stocks like clothing or restaurant stocks could suffer.
- Fundamental: This gets one level deeper into the company’s own performance. A profit-making company is likely to see a rise in stock price. While a consistently loss-making company is likely to see a fall in price. There is of course a whole lot more to a company’s analysis, so a holistic perspective is usually taken when buying a stock.
- Technical: Some investors watch trends in stock prices over time to assess what could come next. For instance, if a stock’s price falls below its 200-day moving average, it can indicate that it will start rising. So that could be a good time to buy.
Stock Investing Starter Tips
Before rushing headlong into stock investing though, a few points need to be thought through. These can hold you in good stead over time. These are:
1. What’s My Budget?
Savings can be invested into various assets like real estate, gold, bonds, and stocks. So, it would be a good idea to know beforehand how much money you can invest in stocks. This can help you create a systematic plan to get exposure to stocks on a regular basis. Since stock investing carries risk, it is always good to keep in mind that the value of these investments can decline sometimes.
2. What Are My Target Gains?
Both greed and fear are baked into stock market investing. When fear strikes, investors start selling and when greed rules, they buy. During cycles of greed, we might find our stock portfolio rising fast.
It can be easy to get carried away and keep investing at such times. But that could be risky. For this reason, it is a good idea to decide at which point to sell. If you expect 20% gains from a stock, consider exiting when that happens. It could continue to rise in an optimistic stock market, but it might get mismatched with fundamentals. This means it can crash anytime.
3. Choose The Right Stockbroker
It is also essential to choose a stockbroker well, that can buy and sell stocks on your behalf for a fee. Online stockbrokers are popular and there are plenty of choices available, to suit different requirements.
Stockbrokers minimum deposit requirement can be one consideration on your mind. Some do not have this in place, while others do. Similarly, some charge a higher commission than others in exchange for say, access to more stock exchanges. You might want to consider how much research they provide as well.
4. How Much Risk Am I Willing To Take?
This brings us to the second point about risk. Some stocks can be high risk and high reward. For instance, a small company may have huge potential but is making losses. While others grow steadily but are not the fastest rising, like a utility company. For an investor who is willing to lose it all, a high-risk profile can be fine. But if you would like to be cautious, choosing more stable stocks is a better idea.
After deciding on a stockbroker as well as your budget, risk threshold and target returns, you are good to go. It is then about deciding which stocks to buy. A good broker would provide some input and there is plenty available online as well. It is always good to remember though that stock investing comes with risk, so stay diversified in investments. While you can make good gains, there can be losses too.
Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.
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