Investing in stocks – If you want to invest in stocks, now is the perfect time in light of the accelerating economic events and sharp market volatility. This article can be considered an introductory and comprehensive guide and valuable for all those interested in such investments.
To discuss investing in stocks, we must begin by defining what a joint-stock company is. The joint-stock company determines the commercial company whose capital is divided into shares and whose bonds are secured by the inheritance of the concerned company.
Closed Joint Stock Company – Shareholders have the right to sell their shares within the respective company only to other company shareholders.
An open joint-stock company – where shareholders have an unlimited right to dispose of their shares, and they can be sold publicly.
In other words, the owner of the shares is also the owner of a part of the company issuing the shares.
Tips before investing in stocks?
- Consider the level of risk you are willing to take. Do you have a high-risk appetite, or would you instead choose only the safest procedures? In any case, investing in the stock market is always risky.
- Choose a good investment platform. Some platforms come with different costs for each position made.
- Invest only in companies you know. Decide whether or not to buy shares of a particular company.
- Think long-term. Investing in stocks is not ideal for those who want to get rich quickly but rather for people who measure success over the years.
- Invest every month. Think of investing in stocks like savings accounts and depositing specific amounts each month.
- Develop a strategy and stick to it. It is preferable to follow one or two strategy, rather than changing your perspective and vision from month to month.
- Stocks are just an option. You can choose to invest in gold, silver, coins, and much more. Choose what you think suits you best.
What types of stocks are there?
Ordinary shares, which are those that will be traded on an exchange and that offer the equity mentioned above.
Preferred shares, which in addition to the benefits of common shares, offer their holders some additional rights, such as receiving dividends regardless of the company’s profits, priority in repurchasing shares in the event of company liquidation, etc.
Why does the stock price fluctuate?
Have you ever wondered why stock prices go down and up? The share price is determined by several factors, the most important of which are the following:
Supply and demand
Buying stocks: First of all, supply and demand will cause prices to change.
If many people buy those shares to sell, their value will increase, and vice versa; their price will decrease if most people sell the shares.
Now, the factors affecting supply and demand can be multiple:
- Some political decisions can lead to the mass liquidation of the governor.
- During economic crises, the price of most stocks falls.
- During periods of economic growth, the value of stocks rises.
On the other hand, the company’s profitability also plays a significant role in determining the share of the stock in the stock exchange. The value of the shares of a very stable company with good financial performance will be higher than the value of a company with volatility in tax reporting. Thus, a more stable company is more attractive to investors. The company’s success, revenue, and stability are other factors that will determine the share price development.
How does investing in stocks help you make money?
stocks can generate profits in two ways:
As I mentioned above, the company’s shareholders are also entitled to receive a portion of the dividends granted following the company’s earnings, according to the number of shares owned.
Dividends are nothing more than the amount of money allocated from the annual profit per share.
For example, if you owned 100 shares of Company X that earned $500 each, you would earn $50,000 at the end of the year. The funds can be withdrawn or reinvested automatically as you wish.
Note: If the company records losses at the end of the fiscal year, they will also be distributed equally, depending on the number of shares each investor owns.
The second way to make money from stocks is well known. You buy a stock at a low price and sell it when its price increases.
This strategy is also called “capital gain”.
Even if prices go down, that shouldn’t scare you. Remember that this is normal, and no one is forcing you to sell the stock at a lower price.
Wait until the value of the shares reaches the levels you were hoping for, and only then sell your investment.
In times of crisis, for example, when the prices of most stocks are meager, the ideal times are to buy stocks, which you sell after the economic situation recovers.
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Before investing in the shares of a particular company, you should at least check the following:
- Find out if the company is profitable or not.
- Check the history of the company.
- Competitor analysis.
- Find out who is responsible for the company.
- Analysis of the annual financial report.
- Study a little the company’s field of activity.
- Balance any risks associated with the investment.
Risks of investing in stocks?
Stocks can be one of the most profitable investments for some, but they also come with the most significant risks.
Below are the risks to those who decide to choose such investments:
- The company in which you own shares that are stagnant or are experiencing losses will affect the value of each share.
- The risk of a stock market crash, which in the worst case will lead to the loss of a large part of the invested capital.
- A downturn in the market due to economic conditions or inflation, which may negatively affect the investment in stocks.
- Politics can have a devastating effect on the stock market. Legislative changes or policies of new economic conditions will significantly reduce equity investment.
- The interest rates charged by the National Bank will also affect the stock market. When its value is high, the stock market is low, and vice versa, when interest rates are low, the stock market is high.