What is the stock market?
The Stock market is a place where shares of public listed companies are traded. This usually happens in broker exchanges where transactions are inclusive of buying and selling. When you purchase a certain share/stock you are buying a piece of that company. You’ll usually buy stocks online through the stock market, which anyone can access with a brokerage account, robo-advisor or employee retirement plan. Often you might see that the stock market has crashed or moved up or down on a big news heading and this just means that the prices have either dropped (meaning people have lost money) or the prices have increased (meaning they have made a gain).
Different types of Stocks
Growth Stocks - Growth Shares are perfect to buy if you are looking for capital growth. Growth stocks are apart of companies that are expected to generate positive cash flow and have growth faster then the average rate in the stocks market.
Dividend (Yield Stocks) - Dividends stocks can be a popular choice for an income-seeking investor because (depending on the company) they pay you on a monthly, quarterly or annual basis, a percentage of the share you own. The stock yield is calculated by dividing the yearly dividends paid by the company to the company’s share price. For example, if a company is expected to pay out $0.50 in dividends over the next year and is currently trading at $20, the dividend yield is 2.5%.
Defensive stocks - These kinds of stocks are preferable when the market position is poor. Defensive stocks seem to be more stable then other stocks and have continual demand for their products. Some defensive stocks also pay out dividends.
There are many other kinds of stocks to consider, these are just a few to get you started with your stock investing research.
How to invest in the stock market?
There are a few options to consider depending on how much your assets are? how much you are willing to invest? How much risk you are willing to take?
Online Broker Account - Many brokers allow you to open a brokerage account quickly online, and you generally do not need a lot of money or no initial deposit. However, you will need to fund the account before you purchase investments. These kinds of accounts are best for people who want to purchase and handle their own stocks.
Online Full Service Brokers - This option is usually for people who are looking to invest 25k+ and would like helping managing their portfolio. These brokers usually charge a fee for their services, take a percentage of the profits and sometimes charge an annual membership fee.
Robo-advisors - Robo-advisors are usually considered if you are unsure how to trade yourself or want to minimise risk. If you want an algorithm to make investment decisions for you, including tax-loss harvesting and rebalancing, a robo-advisor may be for you. Robo-advisors are not trades done by humans, therefore their fees tend to be a lot cheaper then other brokers.
Overall, stock investing can be a learning curve but can be super lubricative if done correctly. Just a remind that stock investing has risks and you could lose all your money. All decisions made are critical, whether you are buying or selling. Also don't forget to contact your local tax accountant to find out how this may affect your taxes. Investing For Life wishes you luck on your journey to Financial freedom.
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