Fortunes are made and lost overnight in the stock market. I once heard that over 95% of the people who invest in the stock market actually lose money. It’s a risky game for most of us, but with some research and luck many investors make hundreds of thousands of dollars from investing in the stock market. If you are interested in investing in the stock market, take a minute to read this post. I will give a brief overview of how the stock market works, I will teach you why you should invest, show you how to start investing, and how you can actually profit from investing in the stock market.
How the Stock Market Works
The beginning concept of the stock market dates back to 12th century France. Since then it has grown into a huge business and created full time jobs for millions of people. The stock market is vital to our economy chiefly because it is the most important way for companies to raise capitol for their business. Investors buy stock in a company which gives this company more money to invest to grow the business. Hopefully, the business will thrive increasing the value of the stock, the investor will sale the stock and make money.
Why should you invest in the stock market?
Many people use the stock market to earn extra income or to invest in their future retirement. Almost everyone could use some extra cash, right? From personal experience it is very difficult for the average investor to actually make a lot of extra income from the stock market. In order to earn huge gains from the stock market you have to have a lot of money to invest. Because of the “per trade” fee that investment companies charge you, investors have to purchase large quantities of a stock in order to offset the costs of investments. Also, any gains from the sale of stock are taxed more than personal income tax. I would recommend waiting to do this type of investment after you learn the basics of investing and have your retirement funded.
So, back to the original question, why should you invest in the stock market? Investing for your future retirement is a great reason to learn the ropes of the stock market. Many people don’t realize the importance of having their retirement funded. The earlier you start investing for retirement to more prepared you will be when the time comes. It may also allow you to retire sooner than your friends and co-workers.
So, Ready to start investing in the Stock Market?
Not so fast, investing in the stock market can be risky, know what you are doing before you sign up.
First, learn the lingo of the business. There are many websites online you can research and learn the basic lingo of the stock market. At least learn the basics before you start. It’s just like the rule of reading the instructions before you try to put together furniture. Sure you can jump right in and try to put it together, but you will probably miss a step or do something out of order and the whole piece of furniture is ruined. Take some time to read the stock market instruction book before throwing away your money.
Second, open a virtual portfolio at an online stock market trading website. There are many websites online that let you play the stock market game without investing a dime. You can choose any real stocks you want and they will track your progress over time. You can buy and sales just like the real market. After several months if you aren’t making virtual money odds are you won’t be very successful at the real game either.
Research, research, research is the key to success. Obviously, no one knows exactly how the market will work but if you know what to look for sometimes you can get a heads up over the competition. Key factors such as the company earnings reports can have an impact on the stocks value. You can also watch trends of stocks, sometimes the values of stocks peak at certain times of the year. There are many theories on stock market fluctuations but knowing the inner workings of a company can help you invest smarter.
Now, you have earned some virtual money and done some research on your favorite stocks you are to try your luck at the real stock market. There are many places that will allow you to invest in the stock market many of which do no require you to keep a minimum balance and their fees are very low for investing. Once you choose a place to start investing you must decide your investment goals. Do you want to invest for retirement or invest to make money right now?
I would always suggest to the beginning investor to invest for retirement. My choice of retirement investment would be a Roth IRA. A Roth IRA allows you to invest funds after taxes and those profits can be withdrawn at retirement tax free. A Roth IRA allows you to invest in stocks, bonds, mutual funds or ETF’s. It allows you to have a diversified portfolio and still have complete flexibility of your choice.
If you plan to invest to make money now, you should be aware of what this entails. Any gains you make from stock sales in a year are taxed at a different rate than income taxes. These gains are taxed harder so take this into consideration when investing.
Profit from investing in the Stock Market
Again, I obviously don’t know all the secrets to the stock market. If I did I probably wouldn’t be taking the time to write this article. However, there are some simple rules to follow in order to profit from the stock market.
First, buy low sale high. It’s an age old rule that investors still struggle with today. If a stock jumps in price to a peak, you may want to consider a sale and keep the profits. If a stock drops to a new low you may want to consider buying.
Remain calm. If a stock drops a considerable amount in one day, don’t panic. Unless the company is in danger of bankruptcy the stock price will rise. The best thing to do would be buy more of the stock at the lower price.
Diversify your portfolio. As the ole saying goes, don’t put all your eggs in one basket. If you put all your money into a single stock you are living very dangerous. If anything happens to this company your entire portfolio could disappear. It is a good idea to invest in different types of funds including, stocks, bonds, mutual funds and ETF’s. Spread your money around and even if something happens to a single company you will still make money in the long run.
Watch your portfolio. If you are going to make money you want to keep an eye on your investments. Track their progress over time and make necessary changes to your portfolio. You may need to sale some of your investments that have reached highs and maybe buy more of investments that are at all-time lows.
Change your investments with your lifestyle. As you grow older you should move more of your investments to safer areas of the stock market. Individual stocks are considered extremely risky and should be avoided the closer you get to retirement. Instead consider safer investments such as bonds and CD’s.
There is a lot of money to be made in the stock market and there is a lot of money to be lost. If you are going to play the game be sure you understand the rules. Know exactly where you are putting your money and why. Staying on top of your portfolio will increases your changes of winning with the stock market