Stock investing (stock investing for beginners)
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Investing in stocks is one of the four main types of investment besides cash, bond and property investments, and it involves risks, but it can offer higher returns. In this article, we will learn about what stocks are and how to invest in the stock market in them and the risks involved. .
What are shares?
A stock is a share or share that represents a small unit of ownership in a company. If you buy shares in a company, you will have owned a certain share of the ownership of this company.
You can own shares yourself (direct investment) or you can pool your money with other people’s money and include them in a collective investment (investment funds). Investment funds buy a group of shares that are selected and managed by the fund manager. If you put your money in the fund, you do not have to make individual investment choices.
When you own shares directly, you become a shareholder in the company, which usually means that you have the right to vote on some of the company’s decisions. This does not happen if you invest in an investment fund.
Shares are bought and sold on the stock exchange or stock market.
How does the stock market work
It is necessary to understand the nature of investment in the stock market first. Investing in things whose details you are ignorant of is a path to losses and financial risks. What are the most important things that must be known before investing in stocks?
Investing in stocks means buying and holding them for a period of time to achieve financial gain. Money is earned from stocks in two ways:
If the company achieves growth and becomes of value, then the value of its shares will increase, and as a result, you will achieve a gain due to the increase in the value of your investments in this company.
Some companies distribute profits every year for the benefit of their shareholders, and they are called cash dividends.
If you buy shares in large and long-term companies, you will get dividends, but without a rapid growth in the value of the shares. Dividend stocks are good if you are a long-term investor seeking steady income rather than a huge increase in share prices.
As for small companies, they often do not distribute annual profits to their shareholders. These companies have a greater opportunity for rapid growth, which gives a greater growth rate for the invested capital, but the risk rate may be higher.
Ways to invest in the stock market
How do you start investing in the stock market? It is possible to invest in the stock market either on an individual level directly or through investment funds:
1. Buying and selling shares:
If you prefer to buy and sell shares individually, and rely entirely on yourself (you can seek the assistance of an expert or financial advisor on an ongoing basis). You have three options for direct investment:
- online broker
- A traditional stockbroker
A financial advisor or investment manager where you can ask him to buy or sell shares on your behalf, and they will of course do that through a broker or broker.
2. Investing through an investment fund:
In a collective investment, many people put their money into an investment fund, and it is invested in stocks or other assets, such as bonds, cash investments, or investment properties selected by a professional fund manager.
You can invest in mutual funds either through banks, a fund manager, a financial advisor, a traditional broker, or an online broker.
Gains and risks of investing in the stock market
Stock prices can also go down, so buying stocks is not without risk, but in the long run it can bring good financial returns. If you want to double your money in a year for example, stocks are not the best way to do it, but if you intend to invest your money for 5 or 10 years or more, the stock market is a profitable option in the long run.
Stocks are designed to provide investors with two types of return, annual income and long-term capital growth.
Most stocks provide income in the form of dividends, which are usually paid twice a year. Dividends can be thought of as a reward for shareholders. Dividends are paid when the company is profitable and has liquid funds after it has fulfilled all its obligations.
In most cases, the more profitable the company is, the higher the dividends will be. If the company earns large amounts of money and pays out large dividends, it is usually considered a good investment and thus the company’s share price goes up.
Stocks can be invested specifically to get a steady income. Many companies achieve large financial profits every year. They may use part of their profits for general purposes of the company, such as paying rent bills and wages. Companies may also use part of their profits to invest in equipment, research and development. In return, a percentage of its profits are distributed to its shareholders, and since dividends are usually paid twice a year, they can provide investors with regular income.
Companies that pay generous dividends are known as income stocks.
Some companies have huge investment programs, so they reinvest all their profits. These companies are often at an early stage of their development and are keen on expansion and growth, and they are known as growth companies. The share prices of these companies rise when they succeed in achieving their investment plans.
Long-term capital growth is achieved when the share price increases over a certain period of time.
Investing in the stock market is either an investment or speculation
– An investor in the stock market is the one who chooses a company’s stock after reviewing the company’s performance, identifying its services and the strength of its products, and reviewing its quarterly financial statements (quarterly, semi-annual) and the financial statements at the end of the fiscal year. It compares the company’s performance in different annual periods or between the company’s performance and a competing company. This method is called fundamental analysis. This method is suitable for those who want to reap profits from their expectation that the stock will rise within several months or years, or even receive profits from the company in exchange for holding the company’s shares. The share acquisition strategy in this way is called buying and holding, that is, owning the share and staying in the investment portfolio for a period.
The speculator in the stock market is the one who analyzes the stock using the stock performance chart. The speculator does not pay attention to the company’s products and services, nor to the financial statements in most cases. All he cares about is the movement of the stock shown by the chart. This type of analysis is called technical analysis. Speculators are divided into sections, including swing speculators and daily speculators.
Conclusion: Studies have proven time and time again that investing in stocks is one of the best long-term investments in the financial market, as it tends to outperform government bonds, corporate bonds, real estate, and many other types of assets.
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