Saturday, 8 June 2019

How To Start Investing In Stocks Market For Beginners

How To Start Investing In Stocks Market For Beginners

Before we move on let's first understand what stock market it

What Is The Stock Market?

Stock Market is a place where all companies come together to trade their stocks, and stock is a piece of a company, so when you own a stock you actually own a piece of the company

One Way To Make Money With Stock Market

Like any other business, if your business makes money, you would take the profit. But in this case, since you only own a piece of the company so you will get a piece of the profit. And The is called dividend.

The more stock you own the more dividend you would be paid. And that is one way to make money in the stock market.

Second Way To Make Money With Stock Market

Businesses actually try to expand to go bigger and bigger, and as they grow, the value of the company grows as well and the stock price goes up.

  • For example, If you buy Apple stock for $20 then they will list the new iPhone and if it becomes successful and the stock price jump to $30, that means you have made a profit of $10. And that is the second way to make money with stock.

  • But that is also a way to lose money, if the stock price goes down let's say to $15, then you making a loss of $5. The stock market is a little bit like game playing, you make money if you make the right prediction.

Accept that stock can be predicted based on their performance not always of course, but they usually, for instance, the company like coco-cola worth 70 billion dollars and it's stock has been increasing for the past 30-years, of course, it has its ups and downs but overall it was growing up. Is very unlikely that is going to go down in the future

Whoever if it's a technology company, that becomes more predictable because technology is changing very fast

Let take a look at the 2 types of investors out there

1. Active-Investors

Since stock jump up and down every single day this type of investors try to predict which stock would go up today, so they buy them and then sell them once they go up. Usually on the same day or the next day

But for that, you have to be very well financial educated and spend hours every single day analyzing the stock to make the right prediction, which is why a lot of people can't.

2. Long Term Investors

They put their money into stock and let it goes for a year so that in the long run they make a fortune. 

You might be thinking what if you invest all of your money into one single company and then it crashes, that can happen, of course, that is why is the first rule of investment is never put all of your eggs into one basket

Diversify Your Investment

Never put all of your money into one single company, instead, invest them into many different companies so that if one company goes down you are not going to lose a lot of money

Investment Fund

The way to do that is to invest through investment fund because investment fund usually invests in a hundred different companies, so when you invest in one of them you are actually investing in many different companies

If one out hundred of companies crash, that is not going to affect your investment significantly 

The best fund is probably the one that invests in the S&P 500 which are the top 5 biggest company in the US, starting from Apple, Coca-cola, and so on, the average total return over the past 90-years for S&P 500 has been 10% which is not really bad if you invest your money in the bank where you might be given less than 1%

Anyway, 10% isn't really a lot of money that is why you have to follow the second rule of investment

Use Compound Interest

The great investor of all-time Warren Buffett asked, what is the secret of his success? He simply replies, my world as came from Living in America, some lucky genes and compound interest

Compound interest work if you always withdraw your return every year and invested it back

Let's say you are in your 20s and you invest only $100 every month, by the time you reach 45-years it would grow to almost a $916,023.24. On the other side, if you have saved that into a bank deposit, it would be only $54,000

Can you see the difference? That is the power of compound interest

Now, imagine if you invest $500 every month, that would grow to a $4.6 Million dollar, just with a 10% of returns.

The Key Of Investing

The key is to start investing as early as possible if you are in your 20s and you are reading this article then start learning about investing more and more and start doing it as soon as possible.

Some of you might say, I don't want to wait for 30-years until I make a million dollar, well, you don't really need to wait for such a long time, you can withdraw your money at any moment, but the longer you keep it the more it would grow.

Stock is way much complicated than what I explain in this short article so if you are serious about investing then I highly suggest to further study the subject before making any move and of course you can go to our investing category here for more article about investing

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