Stocks are one of the best long-term investments out there. But, navigating the world of the stock market can be tricky, especially for beginners. Here are a few tips that may make you a bit more stock market savvy.
What are Stocks?
Stocks are small shares in a company. Let’s say that a company has 1,000 shares of stock and you want to buy 10 shares. That means you will own 1/100th of that company. If you purchase 100 shares, you’ll own 1/10th of that company. This is a pretty simplified example. Most companies have many thousands of shares.
How do Stocks Make Money?
Each share of stock entitles the owner to a specific share of a company’s profits. That share of stock is worth a certain amount. When the company is doing well, more people want to buy stock, so it becomes more expensive. When the company is not doing well, the value of a share can drop dramatically.
The trick is to remember that stock investing is a long-term deal. Stock values can go up and down several times even during the course of one day. The goal is to “buy low and sell high.” This means that you buy the stock when it is priced lower and sell the stock when its value is high. That’s how you make money.
How to Invest in the Stock Market
There are a few ways you can invest in the stock market. Two of the most popular ways are to purchase stocks on your own or invest via a mutual fund.
Many people enjoy the challenge that comes with handling their own investments. But, for many other people single-stock investing is a bit too much like putting all their eggs in one basket. It’s just too risky to put all their money into one company.
For those who like a safer way to invest, mutual funds provide stock market investing with fewer risks. Mutual funds give you the opportunity to allow someone else to pick the stocks and make decisions as to how and when to sell or buy.
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