Investing in stocks is more than a luxury today; it is a necessity. Many people will agree with this. Modern-day requires more money compounding than ever, and with the internet at our fingertips, we can say the stock market couldn't be any closer.
But before you can dive into this vast market, there are some basics that you need to know. We will explain all the primary factors you need to know about the stock market and investing.
What is the Stock Market?
The stock market is where investors buy and sell companies' shares from every sector. The products sold and purchased in the stock market are called 'Stocks'.
Stocks are a type of security representing partial ownership of a company. Investors buy stocks when they consider a business will be successful in the future.
The stock market is a way for companies to raise money. Companies issue stock to fund their businesses, and investors buy stocks to participate in the company's success.
In the stock market, you can find all kinds of companies and sectors to invest in. For instance, if you find the banking sector to be flourishing in India, you can simply find banking sector stocks to start with.
Indirect Stock Market Investing and Direct Stock Market Investing
The most important thing you need to know about the stock market is that it comes in two different variants, and they are:
Primary Market: The primary stock market is where new securities are formed, and companies list their shares/stocks through an IPO, also known as an Initial Public Offering.
Secondary Market: The secondary stock market is where securities are traded after they are put for sale on the primary market. This will typically include national exchanges, mutual funds, ETFs, and more.
Can Anyone Invest in the Stock Market?
The stock market, whether primary or secondary, is for anyone. So, if you are looking forward to taking a certain amount of risk and experiencing some rewarding returns, the stock market can be a great place. All you need is some capital (investment) to get started.
Pros and Cons of Investing in the Stock Market
The major pros and cons of investing in the stock market are:
Perks of Investing in the Stock Market
Risks of Investing in the Stock Market
You can have your investment compounded (much higher than bank deposits).
There is high investment flexibility.
You can choose from different tenures.
You get to invest in different sectors and companies.
You can choose companies to invest from market capitalization.
The risks of the share market could be unpredictable.
You need to have sound knowledge of the stock market.
You need to be aware of market statistics.
You can only invest what you have left after your necessary expenses.
Basics of Investing in the Stock Market
The basics that you need to understand before investing in the stock market:
Do a Crash Course: You can't spend years pursuing a degree in stock market investment or trading. That's why there are plenty of tips, tricks, and crash courses available online. Moreover, taking a crash course can help you better understand the stock market and learn all the important terminology that you need to know.
Always Keep a Tab: Make sure you keep a good eye on the market. You need to be aware of its ups and downs to make sure you invest in the right places. Also, you need to note that after you start investing, don't be too afraid of the market's ups and downs. Instead, you will have to be patient and calm and never follow the crowd. The only thing you need to follow is your market statistics and research.
Invest What You Have Left: You can't go around investing your entire income in the stock market. Instead, you will have to invest what you have left of your income. You need to pay off all different kinds of expenses, ensure you are on a financially stable side, and then invest what you have left. This is because the stock market does not guarantee any returns.
Don't Believe Sudden Movements: This works both ways; you shouldn't sell your shares when you see underperformance; the share will eventually perform well. The other part is that you can particularly stay away from stocks that suddenly shoot up very high because these stocks can also tend to fall down very fast.
Stay Invested for the Long Term: Investing in the long term is a key element of investing in the stock market. You can see impeccable returns, only when you stay invested for the long term. This is because historical records show us good returns in the long term alone.
End Note
Now that you know the basics of investing in the stock market, why not get started already? There might be risks, but you know by now there are ways you can balance your risks and enjoy more rewards. The stock market is the best way to let your money work for you instead of you working for your money.
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