When searching for the right place in which to invest their savings, people typically think about the stock market. And that’s not surprising, because stock trading is one of the most lucrative ventures in the world.
But how can you get started? It may sound easy on paper, but trust us, it’s not a walk in the park. Lets’ see how you can start earning money through the stock market.
Lean the Jargon
The stock market isn’t exactly exclusive to professionals and math experts. Anyone can join it. However, it’s a world with its own words, terminologies, and jargon.
So, if you want to get into it, you must first speak its language. Terms like spread, double top, market bottom, and dividends may all be Greek to you. But investors and traders throw these words around more often that you can expect.
Learn the language and start talking shop.
Stocks don’t exist out of nowhere. Behind stocks are issuers, which are companies and businesses that have products, employ real people, and maintain a balance sheet.
When choosing which company to invest in, you can either choose dividend or growth stocks. If you’re wise, you can choose both. That’s diversification in a nutshell.
It’s important that you have a growth stock in your portfolio because you’re going after growth. These stocks come from companies that experience high growth at present and probably into the future.
A common strategy for these stocks would be to buy when their price is low and sell when the price gets higher. The only downside here is that growth stocks are often very volatile and therefore carry higher risks.
Dividend stocks, on the other hand, don’t only give you the option of earning through growth. Dividends are payments that the company gives to shareholders from the business’s profits.
In other words, when the company earns a lot that it still has money left after reinvestment and other funding, they sometimes choose to pay it to the shareholders.
These stocks have lower risks than growth stocks because they’re not going after growth anymore. Most businesses under this category are already massively huge and stable.
As a result, these stocks are also appealing for investors who are already saving up for their retirement.
After doing the necessary research to find which stocks are good, it’s time to take the first step into the financial markets through stock trading.
There are many ways to actually buy the company’s stock. You can buy the individual stocks of the company, but you have to be patient and careful with the whole process.
On the flipside, you can start stock trading through exchange-traded funds and mutual funds. Both of these funds are good for those who want to achieve easy diversification.
Mutual funds are a pool of investments that aim to beat its benchmark market. Investors buy shares from these funds to automatically get exposed to whichever stocks the fund has.
On the other hand, ETFs do not try to beat the market. Instead, they try to mimic their benchmark index’s movements. This is considered a passive way of investing that involves less risk for the investor than if he tries to beat market movements.