Basics of Stock Investing
Stock Investing means that an investor owns a piece of a company in which you buy a stock. It has become increasingly more accessible, with beginners able to open an Investing account with a small amount through a brokerage's website or Best Investment applications.
A stock represents a company's ownership stake as a common shareholder. Stock Investing allows shareholders to vote on company issues, with most companies granting one vote per share. Few companies also offer stockholders dividend payouts, giving investors a flow of income on top of the stock's market value. These payouts typically change based on the company's profitability. This blog will discuss the Basics of Stock investing and how to start investing in Stocks.
Before knowing about Stock Investing, it is essential to understand what stock is?
What is Stock?
A stock is a term used to describe the ownership certificates of any company. On the other hand, the share refers to the stock certificate of a company. Holding a particular company's share makes you a shareholder.
Stocks are of two types-
- Common Stocks
- Preferred Stocks
The difference between the stocks is that the holder of the common stocks has voting rights that can be used in corporate decisions, and the preferred stocks don't. Now, Let's discuss what Stock Investing is?
Stock Investing means buying shares of ownership in a company. Those shares are known as the stock of the Company, and by investing in that stock, the investor hopes that the company will grow and performs well over time. When that happens, the stock may become more useful, and other investors may be inclined to buy them from you for more than you paid for the stock. In addition, you could earn a profit if you decide to sell them.
Stock Investing is a long game. A good rule of thumb is to have a diversified investment portfolio and stay invested, even when the market has ups and downs. One of the best ways for new investors to get started investing in the stock market is to put money in an online investment account, which can then be used to invest in shares of stock or stock mutual funds.
Here's what else you need to know about Stock Investing:
Stock Investing is a great way to build wealth by utilizing the power of growing companies. Getting started can be alarming for many beginners looking to enter the stock market despite the potential long-term gains, but you can start buying stock in minutes.
So, where to start in Stock Investing? The answer is that it is pretty simple, and you have several ways to do it. One of the most effortless ways is to open an online brokerage account and buy stocks or stock funds. Also, you can choose the option to work with a professional to manage your portfolio, often for a reasonable fee. Either way, you can do stock investing online and begin with a small amount of money.
Here's how and where to do stock investing and the basics on how to get started in the stock market, even if you are new to the stock market and unaware about investing right now.
How to start investing in the stock market?
The initial step for stock investing is to open a brokerage account. For stock investing, you need a Brokerage account to access investments in the stock market.
The next step is to fund your brokerage account by transferring money from your bank account to fill trades of stocks you want to buy. The amount of money you choose to invest depends on your risk tolerance, goals, and how much money you're comfortable potentially losing.
Before starting the Stock investment journey, below mentioned are a few essential points that you need to consider-
- Deciding on how to invest.
- Open a Demat Account.
- Understanding the Investment Options.
- Emphasis on long-term investment.
- Managing the investment portfolio regularly
Stock Investing: Build your portfolio to grow your wealth
Stock Investing is an excellent way to achieve the growth you have in mind. All you need to do is to set the financial goals and start investing in different investment products. Also, it is required to determine the period for which you want to keep your investment in a particular stock. For instance, 7-10 years of investment offers a good return. Identifying and deciding if you wish to invest in the short term or long term is advisable.
Financial Instruments used in Stock Investing
Below mentioned are the Financial Instruments that the investors use in Stock Investing-
- Equity Share
- Mutual Funds
- Exchange Traded Funds
Advantages of Stock Investing
Higher Liquidity - Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in the Indian Stock market play crucial roles. Mainly companies trade their shares either on BSE or NSE or these exchanges. Stock Investing provides higher liquidity to investors because average daily volumes are high. Therefore, if an investor wants to buy or sell any stock on the stock exchanges, this liquidity makes it easy.
Enjoy the benefits of a growing economy - As the economy expands, so do corporate earnings. Economic growth creates jobs which in turn creates income which then makes sales. A bigger paycheck means more consumer demand, which drives more revenue into the company's cash registers. Therefore, it is helpful to understand the phases and stages of the business cycle: expansion, contraction, and trough.
The best way to keep ahead of inflation is to invest in stocks. Historically, stocks have had a significant, annualized return over the long term. For example, the S&P 500's 10-year annualized return was 15.43% as of January 31, 2022.1. This is higher than the average annual inflation rate. However, this does not mean you should have a longer time frame. This way, you can buy and keep even if the value temporarily falls.
It's easy to purchase stocks - The stock exchange makes it simple to buy stocks in companies. They can be purchased through a broker, a financial advisor, or online. After you have created an account, you can buy stocks within minutes.
You don't need a lot of capital to invest in stock. Most brokers, such as Zerodha, let you sell and buy stocks with minimal commissions. If the stock you are interested in buying is too costly, you can purchase a fractional share from your broker.
Earn money in 2 ways - Mostly, investors want to buy low and then sell high. Investors prefer investing in companies that are growing quickly and appreciate. This is attractive for both buy-and-hold investors and day traders. While the first group sees the stock's earnings and price rise over time, and the second expects to profit from short-term trends. In both cases, stock-picking skills enable them to outperform the market.
Liquidity - The stock market allows you to sell any stock you have at any time. Economists use "liquid" to describe the ability to convert your shares into cash with low transaction costs quickly. This is important in case you need money suddenly. However, you run the risk that you will have to take a loss because prices are volatile.
Disadvantages of Stock Investing
Emotional roller coaster: Stock prices rise and fall every minute. Investors incline to buy high out of greed and sell low out of fear. The best thing to do is not to constantly look at the price fluctuations of stocks and check it regularly.
Common stockholders paid last: Preferred Stockholders, bondholders, or creditors get paid first if a company opts for winding up or Liquidation. But that happens only if a company goes bankrupt.
Time: Before buying stocks on your own, an investor much research each company to determine how profitable you think the company will be before Stock Investing.
Taxes: If you sell your stock for a loss, you may be able to get a tax break. However, if you sell your stock for a profit, you'd be liable to pay capital gain tax.
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Stock Investing is possible to invest if you are starting with a little money. However, it's more troublesome than just selecting a suitable investment, and you must be attentive to the restrictions you face as a new investor.
Every investor has to do their homework to find the minimum investment requirements and compare the commissions to those of other brokers. For stock investing, you must choose the broker with which you would like to open an account and start stock investing.