Investing in shares: 5 rules to follow
EEquity investing may seem like a complex strategy for Wall Street brokers or experienced financial professionals, but it’s actually one of the easiest and most common ways to grow your money.
Thanks to the rise of free brokerage fees and partial stock investing, just about anyone can make a stock investment with just about any budget. It’s a great way to grow your money over time, diversify your holdings, and own your own share of your favorite businesses.
What is stock investing?
Equity investing is the purchase of a security that represents partial ownership of a business.
Companies issue shares — which equity investors buy and sell on the stock market — to raise capital to fund their businesses. When you buy a stock, you are helping the company finance operations such as expanding facilities, hiring employees, investing in technology, settling debt and launching new products.
In exchange, the company gives its shareholders – the equity investors who bought its shares – partial ownership of the company. Equity investors who purchase common stock generally obtain voting rights for corporate actions such as Mergers and Acquisitionsdividend distributions and selection of board members.
Most equity investors are not interested in voting on corporate affairs. They buy stocks because they believe the business will succeed, grow and add value. If this happens, the stock price will rise and the stock investor can make a profit by selling previously purchased stocks at a lower price.
What is an example of investing in stocks?
If you have already purchased a share of AmazonCoca-Cola or any other publicly traded company, you have invested in stocks.
It is possible to invest in private companies, but it is more difficult, riskier and more expensive. Publicly listed companies sell their shares on the stock exchange to all buyers. If you buy one, or even part of it, you are an equity investor.
AND F and mutual fund which contain equity shares – as opposed to non-equity securities such as obligations – offer investors an easy way to spread their money across multiple stocks at the same time. Most experts caution against picking individual stocks, which makes equity funds a great way to diversify your portfolio – more on that shortly.
There is no safe investment. Although some equity investments represent a lot safer than others, all investments involve risk and there is no guaranteed return. But by adhering to the following five rules, you can mitigate this risk.
The 5 Rules of Investing in Stocks
Only qualified financial professionals can give investment advice, but most industry experts agree on some general guidelines for people considering investing in the stock market.
Before you put any money on the line, learn as much as you can about the many stock investing strategies.
- warren buffet, perhaps the most successful investor in history, is a value investor. He looks for stocks that he thinks are “for sale” and are trading at a price lower than their market value.
- Growth investors seek out companies that they believe are poised for massive gains. For example, some investors who bought Amazon or netflix under $1 in the early 2000s were making millions with relatively small investments.
- Dividend investors buy companies that use their profits to make periodic payments to their shareholders. Many seniors buy dividend-paying stocks as a source of retirement income.
You should always be open to feedback and alternative viewpoints, but never base your decisions on advice about the next hot stock from the person next to you at the living room or the Little League game. From friends and family to online influencers, there’s no shortage of enthusiasts who overestimate their own stock investing abilities.
If you get a stock tip you’re interested in, do your own research and determine if it’s a stock investment that’s right for you. your strategy.
You will also likely be tempted by stocks that seem to make everyone rich except you. GameStopfor example, soared in value during its now legendary Reddit-based short squeeze, peaking at nearly $87 per share on Jan. 27, 2021. But the stock was artificially inflated, and on Feb. 4 GameStop fell back to less than $14. .
Nothing draws a crowd like a crowd, and many newbies who invested for fear of running out bought GameStop shares when high and sold when low, which is the opposite of investing. in actions succeeded.
The old adage of not putting all your eggs in one basket might as well have been written for stock investors. One of the most important rules, especially for beginnersis to distribute your money to protect you in case one of your choices does not materialize.
Don’t put all your money into one stock or even one sector, like technology or energy. Instead, you should balance your portfolio with a mix of different stocks from different segments of the economy.
The cheapest, easiest and fastest way to achieve wide diversity is to purchase exchange traded funds. ETFs are like mutual funds, but they trade stocks on the open market just like individual stocks, and because they’re not actively managed, they’re usually much cheaper.
Virtually all credible experts advise stock market investors – novices, in particular – to invest for the long termpursuing consistent and achievable gains over time.
Avoid trying to “time the market” by buying or selling stocks based on what you think they might do in the future. Instead, buy and own stocks of companies that you believe will grow and prosper over time.
A common long-term investment strategy is to purchase average, in which you invest a set amount of money on a set schedule to smooth out natural price fluctuations. If, for example, you contributed $50 to an ETF every other Tuesday, you would buy more when it was cheaper and less when it was expensive, which is the desired outcome of stock investing.
Don’t stare and forget your stock investment portfolio. Always continue to learn, research and grow as an investor and keep an eye on your actions, making adjustments if necessary. This could mean rebalancing your holdings or swapping your current ETF for a similar ETF with lower fees.
The purse is the biggest wealth generator machine in history, and you can get in on the action as a stock investor even if you don’t have a lot of money or experience. The fees and commissions associated with investing in stocks used to be prohibitive, but today you can start with nothing more than the money you plan to invest.
Open an account with a no-fee, no-minimum brokerage that allows partial stock investing, allowing you invest all the money you have, although this is not enough for full sharing. Stick to “blue chip” stocks, which are the major branded companies that tend to be more stable and less volatile than smaller companies that are still finding their footing.
A single stock of an ETF that tracks the S&P500 includes America’s 500 largest companies – and you’ll own some of them.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.