Sometimes dealing with money can feel like drowning. If you’re not sure where to turn for money advice, looking at the stock market can be a way to make your money work for you.
Before you get started, do a little research so you know what you’re getting into. Sometimes tying up available funds makes people cautious, so they don’t do it at all.
But investing in the stock market can be a great way to use the money you have and make it grow. Here’s some great investing advice for new stock market investors.
Investing Advice for Beginners
The biggest piece of advice for someone getting started in the stock market is to know their terms. Make sure you understand what each word means before you start. The difference between a public and private stock should be part of your basic vocabulary so that you don’t make any investments you regret later.
Public stocks are shares of a company that the public can buy. Private stocks are shares of a company that owners and part owners hold, which aren’t available to the public. But that’s only the beginning.
There are also different types of public stocks. These are called classes, and each company’s different classes of stock are worth different amounts. Class A stock might be worth a lot more than Class B stocks, which means the buyers paid more for them.
Because they paid more, they can have more voting rights. Class B stockholders wouldn’t get as much of a say during a vote. Companies use classes of stock to invite more people to invest in their company without splitting shares and decreasing the value of the stock investors already hold.
You’ll also encounter preferred stock and common stock, which operate a little differently. Preferred stock shares receive dividends from the company, but at a set rate. The company gives the stockholder no voting rights and has the option to buy back the shares at any time.
While preferred stocks seem more like bonds, common stocks are most like what you picture when you think of stocks. You purchase them and receive a share in the company along with voting rights. Then you make a profit when the value of the shares goes up and you sell it.
Some common stocks earn dividends as well, and the value fluctuates based on how well the company is doing.
You’ve heard it before: diversify, diversify, diversify. But what does it really mean?
The biggest part of diversifying is understanding the risk factor with each stock. You diversify, or buy different kinds of stock, so that you aren’t putting all your money in one place. That way if it loses money, you don’t lose all your money because one of your investments did poorly.
You should invest not only in different companies, but in stocks with different risk factors. You want some of your money to be in high-risk stocks because they earn money faster. But in case something happens, you also want to invest in a less volatile place so that you have more of a sure thing (even though it makes money slower).
Make a long-term plan for how you want to see your money grow. This is a place to be realistic; you don’t want to say that once you make a million, you’ll sell, if you are only investing $50 to start (it will take a long time to get to a million from there).
You do want to understand how money grows and that it takes a long time, though. Don’t expect to get rich quick. Set goals so that you know at what threshold you want to reinvest the money you’ve made, or when to start paying yourself out of the profits instead of reinvesting.
What If I Need My Money Back?
If you’ve invested already and you can’t sell the stock right away but you need the money, a stock loan is a way to borrow against that non-liquid money. Even though it’s tied up, you can transfer the stock to a loan company, and they’ll give you money. Then you make payments to them for the value of the stock, based on the number of shares and market prices of the stock.
Once you’ve paid off the loan, they transfer the stock back to your name, and you get it back. It’s a great solution to the problem of jumping in too early to invest. Here you can continue reading more about stock loans and how they work.
If you’re a clock watcher, or someone who is nervous about money in general, you’ll probably spend a lot of time checking on how your investments are doing. Remember that values rise and fall and you’ll see numbers jump more than makes you comfortable. It’s not until the investment has grown significantly that you sell out, unless something has no chance of recovering.
Resist the urge to freak out and act based on your emotions. Keep a close eye on your investments if you like, but don’t sell at the drop of a pin because you’re scared. Most of the time, stock prices fall and rise again later.
Do get some advice and pay attention to large dips, however. You don’t want to get stuck with shares of a company that is going bankrupt and let it drop too low before finally selling to get at least a little money out of it.
By observing how the market behaves and paying attention to your companies in the news, you’ll start to predict trends and make more informed buying and selling decisions. It can be even more profitable than investing in real estate.
Jump Start Your Stock Market Career
Basic investing advice means being cautious and paying attention. Anyone who puts time into their investments and not just money will have a great way to make money over time.
Know your stock terms, diversify, be patient, have a backup plan like a stock loan, and be logical. Then you’ll be able to maximize your investments.
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