Financial literacy is becoming increasingly popular these days. More people are looking for ways to earn, invest, and reach their financial goals. Investment types are becoming diverse and cater to the preferences of different individuals or groups.
The stock market is one of the common financial havens of new and seasoned investors.
What is the stock market?
The stock market is the collection of exchanges and markets where constant buying, selling, and issurance of shares happen. The stocks being referred to in this context are shares of publicly held companies.
Activities in the stock market are executed through institutionalized formal exchanges or over-the-counter marketplaces heavily regulated by governing bodies. Each country has different trading venues investors can take advantage of. The stock exchange is where the selling and buying of stock take place.
If our non-technical and short explainer of the stock market piqued your interest, you’re probably thinking that investing your money in trading stocks would be easy. Not exactly.
Investors who got rich from this type of security did experience losses, some even amounting to millions. But they put in the work of learning the twists and turns enough to make good decisions later. Even if they didn’t put the work in themselves, they partnered with trusted fiduciaries who made executions in their place.
We’re not trying to push you to back out of investing, but we’re telling you that putting your money into anything you don’t know much about always comes with big risks. Even investors who have been in the game long enough know that no investment comes without risks.
If you’re planning to join the world of stock investment, here are three things you must know before you dive in:
1. The stakes are higher in the short term.
Stocks are often perceived as havens for financial assets. But what they didn’t tell you is that to yield the expected results, it would take a long-term commitment that comes with no guarantees. The volatility of the stock market can bring your shares from zero to a hundred in a matter of minutes. The movements are always from one side to the other, and there’s little to no chance that movement to stop in the middle.
This means that there would only be winners and losers. If you’re looking to invest your money for a short period, the stock market isn’t a safe bet for your hard-earned money. But if this volatility is what makes your blood pump in excitement, why not take the risk?
2. You’ll be working with brokers.
Brokerage firms exist to be the middle entity between an investor—you—and a company you’re buying shares from. To do so, you must open an account with your chosen brokerage firm and deposit money into your account. Executions are made on your call. You decide the corporation you buy from and the amount of stock you’ll purchase. Brokers earn through fees they charge you for your executions.
Luckily, opening accounts with brokers can be done without much fuss—through your mobile phone. If you’re ready to join the roller coaster ride, then you’re a few taps away from your first stock purchase.
3. It’s not smart to invest in a single company.
Did you discover a promising start-up? Good. Leave it at that. Even though investors are mostly driven by predicting market movements, their predictions are products of years of experience and analyses. You can’t put your money based on what your gut tells you about a young company that you think would be the next Amazon. A wrong move can cost you some of your deposit, if not all.
The safe strategy would be to reduce your risk by spreading your investments. Doing this will give you more leeway when winning and losing. The outcome would be you losing some and gaining some.
The first order of business would be to engage in deep research about how the market operates. Learn the terms and get to know the most promising companies you can buy shares from. To lessen the work, you can reach out to a financial advisor who will help you make excellent decisions.