FINANCE 101
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Investing in the stock market may look simple, but it’s not. Just because you have some cash to spare, doesn’t mean you can invest that money in the stock market and make huge profits. In fact, if you don’t know your moves, you are likelier to lose all your hard-earned savings. There are many stock financial market experts such as CMC Markets that could help you with your investment goals. But it’s recommended to not approach brokers and traders with no knowledge of your own. If you know at least the basics of investing, you should be able to recognize the right investment moves from the bad ones. Keep reading if you’d like some help getting started.
START WITH MUTUAL FUNDS
Investing in the stock market is not just about stocks. If you’ve never been into trading before, it’s recommended you do not jump into stocks right away. Starting off in stocks can be risky, and you could easily lose your money if you do not know what you’re doing. Therefore, start with the not-so-risky investment vehicles such as mutual funds, which are managed money pools comprising of stocks of different firms. This means if the shares of one of the companies in the pool happen to go down in value, appreciation of shares of other companies in the pool will offset that loss. It’s extremely unlikely for all the companies in a mutual fund pool to falter at the same time since they are usually handpicked from different industries.
- Read: What You Need to Know Before You Invest in Mutual Funds
LEARN INDUSTRY TERMINOLOGY
Most people know what a stock price is and what the trading symbols of popular companies are. But a clever stock investor would know that stock prices do not reveal how healthy a company is or how it will fare in the future. To understand how a particular stock is doing, several factors have to be looked into. And that means learning some terminology and definitions. For instance, you should know what outstanding shares, dividends, earnings per share (EPS), market capitalization, price to earnings (PE) ratio, etc. mean.
PICKING A STOCK
Getting accustomed to those financial terms is a good start, but it's not sufficient to determine which stock or firm to invest in. Primarily, the stocks you buy can be categorized as dividend stocks and growth stocks.
GROWTH STOCK
A growth stock is an undervalued stock that's currently on an upward trend. The idea behind trading these stocks is buying them when they are inexpensive and selling them when they rise in value, to make a profit. Growth stocks are usually stocks of new and innovative businesses that are yet to make a mark for themselves within their respective industries. With growth stocks, you are more likely to get quick and significant returns. However, their volatile nature also means you could lose money at the same pace.
DIVIDEND STOCK
Fortunately, making money on the stock market is more than just growth stocks. Enter dividend stocks! A dividend stock is ideal for individuals who don’t have much appetite for risk and are content with even marginal positive returns. These stocks primarily represent companies that have plateaued as far as growth is concerned. The real USPs of such stocks are their dividends and stability. In other words, the chances of these companies going out of business within a few days are next to impossible. They usually make sufficient money for reinvestment and also to pay dividends to their shareholders. A dividend is essentially a company paying money to investors for their patronage and support.
Investing in a single company or industry is not ideal. Even if the company you invested in is reliable and healthy, it could still have its issues. Amateurs are usually guilty of investing in a single company. A diversified portfolio is ideal, which means a variety of stocks with different objectives. An ideal investment portfolio would comprise of both dividend and growth stocks, along with mutual funds and other investment vehicles. Also, have a long-term approach to stock market investing. If you look at people, who’ve been most successful with stock trading, almost all of them have played the waiting game. Therefore, be patient and give your money some time to spin its magic.
- Ready to start investing? Check out Ellevest. They can help you reach your financial goals.
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