It’s Time to Study the Stock Market
If you’re interested in learning about trading in the stock market, you’ve come to the right place. Trading in the stock market may seem overwhelming, and there can be a lot to figure out, but with the right information and some patience during the learning process, you’ll know how to study the stock market and can take your time to invest in the right trades for you. Explore more about what the stock market is and what you should know about the investing process.
What Is the Stock Market?
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The stock market is a marketplace where individuals can buy and sell stocks. Companies that are publicly traded appear on the stock market and allow the general public to purchase ownership shares in the company. You may have heard of the New York Stock Exchange (NYSE) or the Nasdaq, two major stock exchanges that most individuals invest in. Anyone can trade on the stock market, but how you trade will depend on your goals, budget, risk tolerance, and long-term or short-term investment needs.
Frequently Used Investment Terms
While you learn the stock market, you may come across a number of terms you aren’t familiar with. Refer to this list of frequently used investment terms to understand a little more:
- Stocks: Stocks are ownership shares of a publicly traded company.
- Mutual Funds: A mutual fund allows you to purchase shares in a fund that comprises many shares from different companies. For example, you can purchase a single security in a mutual fund, but that security can hold shares in over 500 companies that are part of the fund. Mutual funds are priced each day at market closing.
- ETFs: ETF stands for exchange-traded funds, and they are very similar to mutual funds. ETFs differ in that they trade like stocks, so their pricing can change throughout the day, and you can buy and sell as many times as you want in a day.
- Penny Stocks: Penny stocks are also called over the counter (OTC) stocks, and they are small stocks that trade for $5 per share or less. Some investors appreciate penny stocks because they can own shares in a company for little investment, but there are some risks with penny stocks, too.
- Ticker Symbol: The ticker symbol is the group of letters that appear after a company’s name in the stock exchange list. For example, Apple’s ticker symbol is AAPL.
- Orders: Orders are commonly used to put some parameters in place for your investment moves. The most common orders include market (where you buy or sell stocks immediately at the current price) and limit (when you want to buy or sell once the share value reaches a certain price).
Learn the Stock Market
T here are many resources out there to help you learn the stock market. Check out websites, books, in-person training, webinars, courses, and articles from reputable publications. You can get informed on stock market news and trends and even receive tips for investing in securities. If there is someone you trust who has successfully invested and traded in the stock market, ask for their advice and guidance as you go at it yourself. They can answer questions, look over your investment decisions before you hit purchase, and may even be able to recommend resources they used when they first started.
You may also want to turn on the news and spend just 15 minutes per day absorbing the headlines and watching the stock tracker across the bottom of the screen. Also, news outlets that focus on the stock market will naturally use jargon that will significantly increase your knowledge and confidence in investing, helping you navigate the stock market.
Once you have educated yourself and are ready to try your hand at investing, consider doing a practice run through an online simulator. There are many online brokers who give you the tools to practice buying and selling stocks so you can get the hang of it and see how your investment decisions go.
How to Invest in Stocks
There is no hard and fast rule on how you should invest in stocks because everyone’s beginner’s knowledge and financial situation are different, but here is some guidance to get started:
Determine How Involved You Want to Be
There are various paths you can take when jumping into your investment options. You can take a very hands-on approach to your investments and choose the securities you want to invest in. You can also work with a broker, give them some parameters depending on how much money you have to invest and how much risk you want to take on, and they can make the right investments for you.
Open an Investment Account
You can open an investment account for yourself through a broker or even a robo-advisor, which is a brokerage option that provides automated investment choices based on your financial planning needs. It’s important to do your research into different brokerage accounts because some charge fees and others may require a minimum. You may pay fees for benefits like more personalized service, but the point is to do your due diligence and open an investment account that checks off your boxes.
Decide on Your Goals
Your goals will drive some of your investment decisions, so knowing what your ultimate goals are is important. If you are investing with the goal of supplementing your retirement, stocks may be your best option as their growth potential and long-term buy-in can support this goal. If your goal is more short-term, like in the case of wanting to have a sizeable down payment on a home in the next five years, then a money market fund or short-term bond fund may be something to consider.
Set Your Budget
You do have to invest money in the stock market, but exactly how much really depends on what you’re willing to spend. Even with a small amount of money, you can still invest in the market. Every stock comes in at a different price per share, so what you set your budget at may depend on the cost per share of a stock you really want to be involved in. Just know that some shares are priced higher than others and that there are different stock funds that you may want to consider.
For example, two common funds are exchange-traded funds and mutual funds. Mutual funds usually have a minimum amount of money you have to invest, but ETFs allow you to purchase a certain amount of stock at the price per stock or to invest a set amount of money for however many stocks that dollar amount affords you.
Decide on Your Risk Level
If you’re new to the stock market, you may want to take on less risk by investing in something sure-fire. Or, you may be more interested in just jumping right in and taking on more risk for the possibility of a larger reward.
Some stock options carry more risk than others, like if you invest in an initial public offering (IPO) from a company that’s now available to trade publicly or penny stocks. With these, you may be okay with the risk versus reward aspect, or you may want to invest in something that grows at a more slow and steady pace like a mutual fund.
Make Your Purchase
Once you feel comfortable buying stocks, visit your broker’s website or call your investment adviser and make your purchase. Choose these options before hitting the submit button:
- Submit how many shares you want to buy or your total purchase price.
- Insert the ticker symbol of the stock you’re interested in.
- Select an order type, if applicable.
- Review your order for accuracy.
Revisit Your Portfolio
Chances are that unless you want to do rigorous day trading, you won’t have to check in on your stocks every day. In fact, this can confuse you even more or cause you to feel like you need to make quick choices because stock values tend to go up and down throughout the day. Instead, just make sure to revisit your investment portfolio every so often. You want to check how your investments are doing in general, if there are any trends you should be aware of so you can make the right choice for selling your shares or buying more of them, and that they still align with your goals.
The Importance of Diversifying
O ne thing to consider when you’re first diving into the stock market is diversification. Diversifying your investments across markets is important so that you have a safeguard should one stock or security go down in value. If you invest in an ETF or mutual fund, you’re automatically diversifying because the fund has many stocks across markets as part of its portfolio. However, if you are investing in individual stocks without the aid of a fund, consider diversifying on your own and increasing the likelihood of having a secure financial future.
The stock market has a lot to give to any individual who wants to learn about it and grow in their investments. I hope this guide has been helpful in getting you ready to build a portfolio.