Investing in the stock market is a great way to beat inflation and build wealth. However, it’s important to know how the stock market works, understand your risk appetite, and what your goals are before you start investing.
If you are just starting to dabble in stocks, here’s a guide to help you out.
What Do Stocks Represent?
Companies sell their stock as a means to raise money. When you invest in a company’s stock, you become a part-owner of the organization. Owning stock allows you to earn money when the share price increases. You may also be able to profit from dividend payments that some companies issue on a quarterly basis based on their performance. The key benefit of investing in stocks is that you earn a compound interest, which helps you build wealth if you stay invested for long enough.
How to Buy Stocks
- Find stocks for your investment portfolio: There is no dearth of stocks in the market. However, do your research before picking stocks to invest in. Remember that it’s important to diversify your portfolio. So, ensure that you invest in the stocks of companies across different industries, with varied market caps. It’s also a good idea to invest in other securities like ETFs and bonds.
- Open a brokerage account: Once you’ve done your initial research, you’ll want to open a brokerage account to invest in stocks directly. Most brokerage companies, today, offer zero-commission trades. It’s also important to check if the brokerage company offers an easy-to-use platform and resources to help you out.
- Stick to a budget when investing in stocks: Given that investing in the stock market is never risk-free, it is important to have a fixed budget for your stock investments. This will ensure you don’t make investments with money you can’t afford to lose.
When Should You Sell Stocks
Knowing when to sell stocks is important if you want to maximize your earning potential. Your best bet is to follow a strategy that is suitable for your financial needs. You should also check the major market indices. Remember never to sell during a market downturn. While it’s not fun to lose money, the market will pick up and your investments are likely to rise again.