Beginner’s Guide on How to Invest in Stocks
First, what are stocks?
Stocks are instruments that generate interest-bearing payments (dividends) to investors. So basically, when you buy a stock, you buy a percentage of ownership in a business. Let’s say if you own a property for years you can be sure that you will be able to sell it for more money than you bought it for. It works the same with stocks. They are appreciated for a long run.
When buying stocks, you buy ownership in a business, and you are aware that you are not the only owner and there are other shareholders. These people believe that the company will be successful and will be rewarded for their investment with dividends and capital gains.
The value of a stock can go up and down. Stock’s value basically represents company’s value. There are many different factors that affect company’s stock price and the most important one is the company’s earnings.
How to invest in stocks
There is actually nothing difficult in buying a stock. First, you’ll need some capital, a payment account, and a payment method you can use. Second, you’ll need a broker. Brokers are the middlemen between you and the big companies that create and sell stocks.
Many online brokers allow you to buy stock without paying a penny upfront. All you need is a form of payment and a few minutes to sign up and open an account. All you really have to do is choose a broker that offers you the most competitive commissions, and helpful customer support.
What stocks to invest in
The buying part is pretty simple to understand, but then the question is what stocks to invest in. And there might be a difficulty in picking the right one. The stock market consists of a large number of different types of companies with varying share prices, but as a general rule, all stocks are considered “equities.” All of them are considered public companies and their financials are open for everyone to see. The stocks on the NYSE are usually followed by a ticker symbol, while smaller companies’ stocks are often abbreviated as CCC, LP, and OTC.
There are over 40 different asset classes that stocks can be classified under, so we’ll just stick to the most common classes: common stocks, and exchange-traded funds (ETFs).
There is such thing as value investing, when you want to buy companies that are valued lower than what the company is worth. But there’s more to it than that. What does it mean to be undervalued? In a word, that means there is a massive margin of safety, that the company could (and most likely will) rise in value.
So the advice is to only buy stock in companies that you understand – not just on the basis of a valuation check, but on a more fundamental level.
Investing in stocks doesn’t require special expertise or follow any rules. But if you’re a total newbie to the stock market, you might be nervous about buying individual stocks. Since you don’t know what to expect, it’s best to stick with a low-cost index fund.
Stock investing is not a rocket science and pretty much anyone can start investing in stocks. But before you get started, it doesn’t hurt to do some research, find the right broker and the right stocks to invest in.