What is a stock? And what does it mean to invest in stocks?
Stocks are securities that show a company owns and claims its assets and income. Investing in a particular company means that you are investing in that company’s future and the company’s profit or loss. If the company is successful, your investment may increase in value over time; And if the company performs poorly, your investment may lose value.
You buy a portion of a company’s stock for a fee. In principle, you own that company in a way depending on the number of your shares. This type of bond has two face values and market value. The value of a company’s stock is determined in the market through the supply and demand mechanism, where traders fluctuate stock prices during the day and over time. You can make a profit by buying common stock and rising stock prices. You can trade daily, and the stock market price is determined by buying and selling or supply and demand.
How much money do we need to invest in stocks?
Investing in the stock market does not require large capital, and you can enter this market even with small amounts.
It should be noted that it is better to use your stagnant and idle capital to enter, such as bank deposits or savings that will not be used in the short term.
In other words, never enter the stock market with the money on which the main building of your life depends, such as the money you earn from selling property, cars, etc., to invest in the stock market. It is an investment that you have a long-term vision for and never thinks of making a profit in the short term.
Buying stocks can benefit investors in two ways:
- Cash dividends:
Cash dividends are periodic payments to shareholders from the income of a company that is approved by the shareholders and the management of the company in annual meetings and are paid to the shareholders. Cash dividends are paid in the form of bonus shares or cash to shareholders.
- Stock price increase or capital gain:
If you buy company stock and its stock price rises, you can sell it at a higher price and make a “capital gain.” If the stock price depreciates and you have to sell it at a lower price, it is called a “capital loss”.
Why is it important to know the concepts of investing in stocks?
Stocks are a major component of most investors’ portfolios because investing in stocks provides an opportunity to profit from its future growth and profitability. Stocks, as one of the different classes of assets, generally have more potential for investors than fixed-income assets.
It is because successful companies can grow significantly over time, and their stock prices can go up and even outperform fixed interest rates. Of course, companies also have problems, and their stock prices may fall. Therefore, buying stocks is considered riskier than equity or mutual funds. According to the results and evidence, buying stock will perform better over a long time (10 years or more) than other asset classes because of the potential for further growth of listed companies.
What to do to invest in stocks?
Depending on the risk and the timing of your investment, buying stocks can be an attractive investment option. In general, the longer the investment period, the greater the chance that short-term market volatility and decline will be eliminated over time by long-term profitability. Medium investment horizons (5-10 years) and long term (more than ten years) are more suitable for investment, while shorter periods (less than five years) may not be very suitable for investing in the stock market. The decision to buy stocks as part of your asset allocation is just the beginning.
Diversifying into a stock portfolio is essential to managing market risk, regardless of your investment time horizon. If you do not want to spend your money and time accumulating a diverse set of stocks, make your business easier by buying mutual funds stocks. Mutual funds usually include shares of various companies that are spread across all industries and are well diversified.
Benefits of investing in the stock market:
Investing in stocks has several important advantages, and because of these advantages, it can be a good option for investing;
You do not need a lot of capital to invest in stocks. You can enter the stock market with the least amount of money you have, but for the activity and the time you spend to be worthwhile, we recommend investing some of your capital in this market.
Stock liquidity: Investing in the stock market is just buying the stock, and if you have chosen the right stock with high liquidity, you can sell your stock immediately.
Stock trading can be done anywhere, anytime. No matter where you are in the world, all you have to do is connect to the Internet with one computer and trade your favorite transactions through various trading platforms built for mobiles, tablets, and computers.
That is why the job of trading stocks, or trading on other stock exchanges, and trading in financial markets in general, is the dream of many people in the world. Because it gives them freedom and these people can have a prestigious and different lifestyle from working people.
It can create a lot of wealth for you. There is no doubt about financial markets’ potential to create wealth, but gaining wealth by investing in stocks is not everyone’s job and requires high skills and experience.
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Critical points in the stock market:
- Your priority in the stock market should be to maintain capital, your second priority should be to preserve previous profits, and your third priority should be to make a profit. Preservation of capital is the most important principle because if you lose your capital, you have nothing to trade with and make a profit.
- The market is not always positive and growing. Always be prepared for when the market goes negative and increase your knowledge to win in difficult situations.
- Use others’ experiences, and when you make a mistake, admit it, correct it, and write down the great lesson you learned from it. Trading on a virtual stock exchange can help you test your stock selection skills.
- Factors such as fear, greed, and other emotions are present in everyone, but they become problematic when they paralyze traders to make the right decision and action! When you make a decision, find out where it came from. From analysis and logic or emotion, optimism, or other factors?
Due to the good return of the stock market compared to other markets, many people have tended to be present in this market and invest their surplus capital by buying stocks. In this article, we talked about how to invest in stocks and the benefits of this market. We hope you enjoy this article.
“If you have any feedback about how to invest in stocks that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”
NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.