The stock market is one of the most popular ways to invest your money. But it can also be a little bit intimidating with all its jargon. We’ve created this blog post for those who are considering investing in the stock market for the very first time.
We’ll go through some basics, like how stocks work and what taxes are involved. Plus, we’ll have links to help you get started so you won’t feel overwhelmed. Investing in the stock market has a lot of benefits — but it can also be risky. It’s important to understand all the risks before you start investing your savings.
What are stocks?
A stock is a share of ownership in a company. When you buy a company’s stocks, you become part-owner of the company and get to participate in its profits and growth.
There are two types of stocks: common and preferred. Common stocks represent voting rights as well as an ownership stake in the company and can be bought or sold on public exchanges like the New York Stock Exchange (NYSE). Preferred stocks don’t give investors voting rights but offer higher dividends than common stocks.
When you buy stock, you’re buying shares from other investors who have chosen to sell theirs. If their shares are worth more, then your shares will be worth more too if they’re ever sold again.
How do stocks work?
If you own one share of a company, you’re considered an owner and entitled to any profits that company makes. Investing in stocks can be very rewarding because this method can generate a great deal of income through capital gains or dividends. However, it’s important to understand that stock prices fluctuate on a daily basis, which means they can be hard to predict. Also, there are different kinds of stocks:
-Blue chip stocks — are the safest bet; these stocks are well established and stable companies
-Value stocks — are less expensive than blue chips but have more risk involved
-Growth stocks — are high risk investments with higher potential for growth
Taxes and risks
When someone invests in stocks, they are buying shares of a company. The price of the share goes up and down based on how well the company is doing. If you want to sell your shares of stock, you can make money. But if the value of our shares falls, you’ll lose money on those shares.
The risks associated with investing in stocks come from how quickly the value can change. When you buy a share of a company, you don’t know how much it will be worth in the future because there are many factors that can affect it: One factor might be changes in supply and demand for goods and services from that particular company or industry. So when you invest in stocks, there’s always some risk involved.
How to invest
The first step is to think about what you want the money to do for you. Do you want it to help pay for your child’s college tuition in five years? Or do you need it to pay off your house in 10 years? If that’s the case, then investing in a mutual fund might be a better option since they offer lower investment risk and grow at a more steady rate.
If you want more control over how your money grows, then stocks are likely the right choice for you. You have more responsibility too. You have to follow the news and know when the yearly dividends are paid out, which can be as often as four times a year or as infrequently as once a year. This can be time-consuming, but it can also result in higher returns than what a mutual fund would provide since stocks fluctuate more than most bonds. You can invest by opening an individual retirement account (IRA). The minimum investment is $250 and there are no income limits like there are with other IRAs.
With either stock or mutual funds, make sure you understand how taxes work before making any investments so that you don’t incur unnecessary fees from not understanding how capital gains work (capital gains tax is the tax imposed upon profits from selling stocks). A great resource for learning about stocks and how they work is Investopedia’s online guides available here: https://www.investopedia.com/university/stocks/
First, you need to figure out what you can afford to invest in, and what kind of investor you are. Will you be a passive or active investor? A long-term or short-term investor? Once you have that figured out, it’s time to start researching companies until you find one that is a good fit.
You may want to analyze the company’s financial statements, review the company’s management team and history, and research the company’s competitors.
And if you’re not sure where to start, there are many websites that can help you do all of this. In the end, it’s up to you how much time and effort you want to put into researching your investments. The more work you put in, the better the chances are that your investments will work out for you.