Is Investing in Stocks for Me?

Posted By Robert On Sunday, October 25th, 2020 With 0 Comments

As the cost of living continues to rise and wages remain stagnant, professionals all over the world have been left with no choice but to look for other ways to generate income in order to make ends meet. While others choose to work two jobs or start freelancing, those who can afford it have opted to diversify their income by dipping their toes into the stock market.

What is a Stock Investment?

According to an article by The Street, stocks are a type of investment that represents an ownership share in a company. While companies see issuing stocks as a way to raise money for their business, for investors, it is one of the most promising ways to grow money and outpace inflation over time. Investors then buy or sell shares through stockbrokers in a stock market exchange where public companies sell their stock. Depending on the performance of the company you bought shares from, as well as the overall economic climate, stock prices can either go up or go down throughout the day. This is the reason why it is crucial for investors to spread their money around and buy shares from different companies.

What can stock investments do for you?

As aforementioned, investing in stocks is one of the best ways to generate income. Compared to other investments, The Balance notes that a stock investment under any kind of company can yield up to a 10% annual return, even with market volatility factored in. This high annual rate of return not only allows investors to grow their wealth, but also helps them outrun inflation.

How to get started with investing in the stock market?

Research the type of account you should open. At the beginning of your journey as a stock market investor, you will have to choose between opening a cash account or a margin account. Although both are brokerage accounts, the main difference between the two is that with a cash account all of your transactions must be made with available cash, while with margin accounts you are allowed to borrow money against the value of the securities in your account. A margin account is basically a loan from a securities firm, and like all loans, opening a margin account may involve a credit check. This credit check will show up on your credit report as a hard search, which Petal Card explains could have a negative impact on your credit score. Whether you opt to open a cash account or a margin account, the best thing you can do to make sure that it is the right account for you is to look at your investment and trading strategy, as well as your risk tolerance. After all, margin accounts come with tons of exciting possibilities but also plenty of risks that are definitely worth considering.

Choose a Company Wisely and Build Up Positions Gradually

The sheer amount of intimidating news about the stock market every day can make it easy to forget that at the bottom of every stock quote is an actual company. When picking out a company to buy shares from, take the time to research everything there is to know about your chosen company. As highlighted in our previous post ‘Investing Principles’, selecting the right company is more important than getting the right timing. If you select the right companies and buy shares at a time when they are at a good value, then you wouldn’t have to worry about the judgments on the market as a whole. Before finally deciding on a company, Nerdwallet suggests learning about how the company operates, its place in the overall industry, its long-term prospects, its competitors and whether it offers something new to the list of businesses you already own or have a share in. Once you’ve decided on a company to buy shares from, remember to take your time in buying. Dedicate some time to learn about the different kinds of buying strategies such as buying in thirds and buying “the basket”, in order to reduce your exposure to price volatility and other risks.

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