Have you ever wondered what stocks are, how they work, and why you should invest in them? How can they be used to help in your journey to financial independence? If so, we’ve got you covered. Read on to find the answer to those and other questions.
What Are Stocks?
Stocks, also called shares, are a type of investment vehicle that allows people to purchase ownership in companies. The shares can be bought and sold in the market, and their value often fluctuates. Investors may earn dividends or even have voting rights.
They are typically issued to raise capital to grow or buy other companies. The Initial Public Offering (IPO) is an event that occurs when the company changes status from a private to publicly traded company. This IPO is when the first stocks are issued
How do Stocks Work?
When you buy stocks, you’re essentially betting that the business will grow and the stock price will go up. Simply put, stock prices rise when a company makes more money and fall when the company loses money.
This stock price tells you how much money the company is worth, also called its market capitalization (or market cap, for short). For example, if a company’s stock price is $100 per share, and there are 10 million shares in circulation, the market capitalization of the company is $10 billion.
Stocks are often traded on an exchange, such as the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ). Most people don’t trade directly on these exchanges, they typically use a stock broker such as Robinhood, Webull, or Tradestation.
Profit and Loss Sharing
When you invest in stocks, you also assume some risk. When a company makes money, its stock price rises, and when a company loses money, its stock price falls.
A lot of company’s will pay a dividend. A dividend is a portion of a company’s profits that is paid out to shareholders on a regular schedule. You can think of it like interest on a savings account. Dividends are paid periodically and typically represent a small percentage of your total investment. With a significant enough investment, it’s actually possible to live entirely off of dividend payouts.
Why Should You Invest in the Market?
Stocks may seem complex and confusing, but they can be a great way to build wealth. Investing offers the potential for higher returns than savings accounts. There are quite a few options, such as bonds, stocks, ETFs, and more that can be used to find a risk level you are comfortable with It takes a lot of research, time, and patience to build a successful portfolio.
Actively trading stocks is another great way to make money. Whether you do it full time, or as a side-hustle when it’s slow at work, trading can be a great way to supplement your income.
Investing in stocks can be complicated, and it’s easy to see why many people avoid it altogether, but avoiding the market isn’t a good idea. A lot of people make a lot of money in the stock market, and it’s possible for you, too. The key is knowing where to start and investing wisely.
The stock market is one of the most important parts of our economy. It provides an opportunity for anybody to earn money if invested wisely. You must plan your investments, create an investment/trading strategy, and build the discipline to stick to the plan. If you do these things, then you too can use stocks as one more tool to aid your journey to financial independence.
What suggestions to do you have to make getting into stocks easier for people? What questions do you still have? Let us know in the comments below!