Investing in stocks is known as one of the easiest and most profitable ways to grow wealth over time. There is quite a lot to learn before you start investing in stock, so here is a brief beginner’s guide to help you with the basics.
Where to Begin?
To begin, you’ll need to open an investment account. If you’re more hands-on, this means opening a brokerage account, but if you feel like you will need some help, opening an account through a robo-advisor, which is a service that offers investment management at a low-cost. Opening an online brokerage account yourself is the quickest and the least expensive path.
So what is stock? The stock market is made up of exchanges, such as the New York Stock Exchange and Nasdaq. They are listed on a specific exchange, that brings buyers and sellers together and serves as a market for the shares of those stocks. The thing about stocks is that it’s not like you’re typical grocery store experience where you select your shares off of a shelf. In the stock market, you have individual traders who are typically represented by a stockbroker and you place your trades through the broker who then deals with the exchange on your behalf.
Understanding the Stock Market
When you hear about the stock market being up or down, this generally is referring to one of the major market indexes. A market index tracks the performance of a group of stocks, which represents the market either as a whole or as a specific sector such as technology or retail companies.
Setting a Budget
The amount of money you need depends on how expensive the shares are. Shares can range anywhere from a few dollars to a few thousand. If individual stocks are the most appealing to you, research which stocks are going to be worth your time and have the most potential for long-term growth and start there.
Not everyone who buys and sells stocks is considered a stock trader. Depending upon the frequency in which they transact and the strategies driving their actions, they are either traders or investors. Stock traders frequently buy and sell stocks to capitalize on their daily price fluctuations. These stock traders have a goal to make extra money in the short-run, whether it’s in the next hour, days, or months rather than purchasing shares in a large company to pass onto their grandchildren.
Bear vs Bull Markets
A bear market means stock prices are falling. The opposite, bull market is when prices rise, which is what we’ve been in since the beginning of 2009. The good news is that the average bull market outlasts the average bear market, which means you can grow your money in the long run by investing in stocks.