Stocks have long been considered one of the quickest and most profitable ways to make large sums of money. This, despite the risks attached to the market due to its uncertainty .
However, increasing your wealth through stock investing is possible, but it requires you to keep an eye on the continuously changing dynamics of the market.
It will also require you to learn how to manage potential risks and keep the odds in your favor. All these factors make it difficult for beginners to understand where and how to start investing in stocks.
Do you get confused by the fluctuating letters and numbers on the digital ticker that cause the shares to rise and fall without any reason?
Don’t worry; we have put together all the basic information you need to understand the stock market and how to invest in stocks. But before we discuss that, let’s briefly discuss what the stock market is.
What is the Stock Market?
The Stock market is just like any other market place. However, instead of selling products and services, companies sell their ownership rights in the form of shares.
When you buy shares of a company, you get a legal share of the business ownership. The ownership rights depend on the amount of shares you own of a particular company.
If the company performs well and its value increases, the value of your share will also increase. Similarly, if the company’s value decreases, the value of your share also decreases.
Types of Stocks
There are two types of stocks, also known as securities or equities, issued by the companies:
Common Stocks
Common stocks are what people usually refer to when they talk about stock investing .
With the purchase of common stocks, the owner gets the right to vote (often, one vote per share) on corporate policy and for electing the board of directors.
However, when it comes to the rights on company’s assets, common stockholders come at the end; they are the last to be paid in case of liquidation.
Preferred Stocks
Owners of preferred stocks get paid at predetermined times and before the common stockholders.
Preferred stocks are also safe because if there is a liquidation of the company’s assets, they are likely to recover their investments.
However, preferred shareholders do not have any voting rights.
How to Make Money by Investing In Stocks?
There are three ways to make Money by investing in stocks:
By receiving dividends from the company whose shares you own
Selling the shares at a higher price
The increase in the valuation applied to the company’s assets. This is often measured by the price-to-earnings ratio. Example: You bought it at $30, it’s now worth $60. You now own a $60 asset instead of a $30 one.
How to Invest in Stocks?
Stock investments can be done through any of the following ways:
401(K) Plan – This is a retirement plan in which the employer takes a portion of the employees pay to invest the pretax income into different stocks. There is also a403(b) plan for people working in non-profit organizations. And a Solo 401(k) for the self-employed.
Brokerage Account – When you open an account with a brokerage firm and deposit your money. The firm then invest your money into stocks and shares on your behalf.
Different Types of IRA – This involves setting up an account with a financial institution and saving for your retirement. In simple words, an IRA account is a savings account with many tax benefits.
Direct Stock Purchase Plan – Also known as the dividend re-investment plan, this is a direct investment method; it does not involve a broker
While you can make Money investing in the stock market. It does involve many risks as well.
This is why we recommend that you educate yourself on the basics of the stock market and research the company you are planning to buy stocks with, from or for before buying.
How to buy a share of a stock?
Using one of the options above. There are two key ways to buy a share of a stock.
On the exchange or via an online stock tracker you will find the price for an individual share of the company. Pay that price along with any broker or trading fees… and you’ve successfully purchased a share of stock.
Another way to buy a share of a stock at a slightly discounted rate, at least temporarily. Is through buying options.
We will have more information on buying stock options in an upcoming post.
If you have any questions on how to invest in stocks. Please share them in the comments section below or check out this new company helping people learn more about investing in both stocks and crypto currency.
