If you’re interested in taking bold steps towards making more money this year, the stock market might be something to consider. History has continually shown that investing in stocks is one of the easiest and most profitable ways to build wealth over the long-term, making it a common venture for some of the world’s wealthiest people.
Here’s a brief guide to investing in stocks, how to make money from them, and much more.
What is stock?
Put simply, a share of stock represents legal ownership in a business. Corporations issue stock, usually in one of two varieties: common stocks and preferred stocks. Stocks are sometimes interchangeably called “securities”, because they are a type of financial security, or “equities,” because they represent ownership (equity) in a business.
Opening an account:
Generally speaking, to invest in stocks, you need an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option.
How much money do you’ll need to start investing in stocks: The amount of money you need to buy an individual stock depends on how expensive the shares are. Depending Share prices can range from just a few dollars to a few thousand dollars.) If you want mutual funds and have a small budget, an exchange-traded fund (ETF) may be your best bet. Mutual funds often have minimums of $1,000 or more, but ETFs trade like a stock, which means you purchase them for a share price (potentially $10 or less on the low end).
How to buy the right stock:
While buying the right stock isn’t a skill that can be taught, looking at a company’s fundamentals – earnings per share (EPS) or a price-earnings ratio (P/E ratio) is always a good idea. For the analytical type who’s taken finance courses, it is also advisable to research these figures.
Using a simulator:
One way to enter the world of investing without taking a risk is to start by using a stock simulator. Using one of the many online trading accounts with pretend dollars won’t put your real money at risk. You’ll also be able to determine how you would’ve reacted if this really was your money that you increased or lost.
Create a broad portfolio:
When it comes to diversification, that doesn’t just mean many different stocks. It also means investments that are spread among different sectors – since stock in similar sectors may move in a similar direction. Also, try to limit checking your portfolio if you’re in this for the long haul.