The stock market is where people invest their money and become millionaires!
Right now, we could all do with some of that good fortune.
Of course, stock trading for beginners is not as easy as that.
How to invest in stocks comes with many other questions that you need to look at before you make that move.
Here’s the most important four to consider.
#1
How does stock market investing work and what are the key things to understand?
The first thing to understand is that investing in stocks always has an element of risk.
You only make money when the market moves up and your stock price goes up. You then sell that stock to make a profit.
Now, what happens when the opposite takes place? When the market moves down, it means the price goes down.
What do most people do? They sell because they’re about to lose money.
But that is not the right way to think about it.
The fundamental thing to understand about investing in stocks is that:
- The market always goes up
- Always goes down
- Always goes back up!
That is the way it works. It has been doing that for centuries!
And you only ever lose money if you sell when the price has dropped. If you don’t sell, you are not losing anything.
Understanding this fundamental psychology will help you enormously.
In other words, you cannot go into investing and trading being afraid, being fearful.
It may seem scary at first. Which is why it may be wise to learn some more about it before embarking on investing and trading.
There are also some keywords to get familiar with when you start to learn stock trading, such as:
- asset class
- market cap
- liquidity
- diversification
- fear and greed
- stock market indices
- bid-ask
- risk-reward
- stop-order
- spread-betting, among others
You will hear these terms a lot when investing and trading. But don’t be put off. These are all very simple to understand with practice.
In fact, you can make a start right now with this stocks quick start course. Just click here and subscribe to IM Insider.
#2
Why do I want to invest in the stock market?
As mentioned earlier, most people investing in the stock market want to make money.
Fair enough. But it will help to delve a little deeper and ask yourself exactly why you want more money and what you want to do with it.
It helps to have a target. Because it focuses your mind on achieving that target.
As you will discover, having a strong mindset allows you to invest and trade with confidence.
Of course, it might not be just to generate more income for cash flow that is your motivation. Maybe you want to make more money for your retirement or as a deposit for a house.
Banks and building societies are putting a squeeze on mortgage loans. Therefore, investing might be the only way to get that deposit money together.
So what kind of returns can you expect to make through investing and trading?
On average, it is 10% a year. That may not sound much and it certainly would not be if you only invested in ONE stock.
So the trick is to invest in many different companies and industries. Plus things like gold and silver and oil.
These are what are known as “assets.”
The thing with setting a clear goal is it will help manage your risks. It will also keep you motivated as you learn stock market strategies.
#3
What am I willing to risk?
It is important to take the risk seriously. A golden rule is – only risk what you can afford.
The last thing you want to happen is to find yourself in financial trouble because you have risked too much.
That is why it is vital to allocate a set amount for your investment.
Again, this is about being disciplined and sticking to a good investment plan.
Investment risk varies.
With a savings account, the risk is virtually zero because interest rates are so low – sometimes as little as 0.2%. You simply are not going to lose very much. But neither will you make very much.
And when inflation outstrips savings rates, a savings account is pretty useless. Which is probably why you are looking to invest and trade.
On the other hand, there are high-risk investments available that can make you more money. They can do it more quickly too. But you simply must understand what those sorts of plans or schemes are. Because they can be complex and tricky to comprehend properly.
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#4
Can I know where my money is being invested?
Yes, you can. But do you know anything about that particular company or niche?
It’s very easy in today’s stock market to buy shares in many household names and even big banks themselves.
For instance, for most of 2022, you could buy shares in:
- Amazon
- PayPal
- Johnson & Johnson
- Caterpillar
- Medifast
And even financial giant Goldman Sachs, among many other high profile mega company’s.
You could buy their stocks because their prices came crashing down. It made them very affordable for the ordinary person.
Wise investors didn’t hesitate. Why? Because these types of companies are very unlikely to go bankrupt. Therefore, you are highly unlikely to lose your investment.
Remember, the market goes up. Goes down. Goes back up again.
So, these mammoth companies are highly likely to recover. The value of their stock is going to recover too. That means – ta dah – the stock you own with any of them is also going to go up!
That’s when you sell and make your profit.
Now, imagine doing that with dozens of other household names. Then your chances of meeting your overall investment target(s) starts looking awesome.
Conclusion
Investing in the stock market is a great vehicle for achieving financial targets and needs.
But you must ask yourself these basic questions before making a start as they will help you start right.
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