There is a saying that “investing in stock is easy, but investing successfully is difficult.” Investors, particularly those who lack basic capital market knowledge, reportedly end up on the losing end of bargains every year. This is not because there is a lack of profit-taking opportunities (there is an abundance of opportunity), but because investors often fail to gather the right information before sinking their fortunes into the stock market.
To avoid such pitfalls, here are five things you should know before delving in the world of stocks.
1. Why the stock market?
The first question fresh investors should ask is why am I choosing to put my money in stocks? The stock market comes with healthy risks and attractive rewards, both for short and long term players. Investors are said to prefer the stock market because the offer the greatest returns in the short term. But stocks are also very volatile as they are driven by speculations regarding market activities, the value sometimes can fall below the price you purchased. Hence chasing stocks of companies with good reputation is often your best bet.
2. Hiring a Broker
Now that you understand a bit of what you going into, the next step is to employ the services of a stock broker. A broker, or brokerage firm, is a licenced to access the stock exchange. Once you have hired one, he or she will receive others from you (to sell or buy stocks) and process on the exchange. They also help provide guidance on which company’s shares you should consider purchasing or relinquishing.
3. Building your portfolio
Given that the market is littered with risks and rewards, it is important to keep the word “balance” in mind when building your portfolio. Ensure you have a mix of highflyers (stocks with high growth rate), slow-and-steady (shares with high prices but steady yields) and a few gamblers (those that can either plummet or soar quickly). This allows you manage enjoy the gains of investing in stocks as well as absorb unusual shocks.
4. Making money
Most people invest to make money, and it’s no different for those who put their money in the stock market. The capital offers two key ways of making money: the first is by receiving dividends from a company whose shares you acquired. Dividends are small payments made to shareholders when by the investee company. It is done mostly when the company declares a profit for an operating year. Another way is to cash-in on your shares by selling them. You can turn in a profit when you sell at a higher price than you initially purchased them.
No doubt stocks are very attractive to investors, but there are other alternatives that are also very rewarding. Bonds, mutual funds, and treasury bills are interesting investment prospects to explore. Some though take a longer time to germinate provide higher and safer yields than stocks.
Investing is a great way to build wealth and enjoy a stable financial status, so you can try other investment products like bonds, mutual funds, treasury instruments and other money market funds.