If someone had invested $100 in NVIDIA stocks in the early 2000s, do you know how much those stocks would be worth today? Over $60K! Well, that’s the beauty of stocks: they compound over time.
As a part-time stock market investor, I believe it’s much better to invest your money in stocks than to keep it in a savings account. However, it’d be a blatant lie to say that stocks always increase over time. Stock markets don’t work like this, and significant risks are involved.
Nonetheless, a stock market can be a money-printing machine, but without a basic understanding, you might not be able to earn a dime from it.
Here, I’ll explain how the stock markets work and share a few helpful tips to start your journey as an investor.
Without further ado, let’s get started:
Understanding the Basics of Stock Market
Think of stock markets as places where companies list their shares for trading. You can also call the stock market an instrument where companies raise capital by selling their shares.
Individuals and institutional investors, such as stockbrokers, buy/sell companies at the optimal price to make profits. People who buy stocks are called shareholders. And technically, they gain a part-ownership of a company after buying its stock.
The dynamics of stock markets have dramatically changed after the introduction of digital platforms, such as Robinhood, Charles Schwab, Vanguard, and more. Today, brokers, individuals, or organizations can trade stocks without ever visiting a stock market.
Having said that, if you make up your mind to trade stocks on these platforms, then ensure your internet connection is up for the task. Stock markets can be volatile, and these platforms update data in real time.
Speaking from experience, I’ve always traded on high-speed fiber connection that helps update data in real-time and execute trades without delays. If you’re looking to upgrade your internet for trading, I recommend using the provider comparison tool on LocalCableDeals to find an Internet Service Provider (ISP) based on your needs.
Now that you know the basics of how stock markets work, let’s explore those helpful tips.
Tips Before Investing in the Stock Market
As I said, stock markets are volatile, and you should not invest without prior knowledge. Other than this, below tips can greatly help in your journey to become a successful stock investor.
- Research the Company’s Stocks
Researching a stock is one of the key steps in investing. It’s a mistake to buy any company’s stocks without researching its prospects, such as its scope, expansion plans, industry growth, etc.
Additionally, a company’s financial growth is also reflected in its stocks. A company closing its financial books on a positive note is likely to see a hike in its stock price. Similarly, a company suffering from losses might not be able to attract potential stockholders in the market.
Personally, I always shortlist companies from a high-performing industry and analyze their financial standing. Then, I always evaluate their prospects in the coming years and decide whether to buy their stocks or not.
Also, while you might want to invest in stable companies such as NVIDIA, Apple, Tesla, etc, keep in mind that such stocks rarely jump overnight. For instance, it took NVIDIA more than 20 years to convert a $100 into $60K.
- Choose the Type of Stock
The type of stock you choose to invest in directly impacts your profitability. Below, I have explained the two types of stocks you can invest in:
- Common Stocks: These stocks offer voting powers to individuals. People holding the common stocks can vote on the company’s corporate policies. However, common stockholders are not guaranteed a dividend from a company’s profits.
Companies generally pay a dividend to preferred stockholders first, and the remaining amount is disbursed among the common stockholders.
- Preferred Stocks: People holding preferred stocks do not get voting rights. However, preferred stockholders are paid first whenever a company offers dividends on its annual earnings.
Additionally, preferred stockholders get a share of the remaining assets or profits in case a company is dissolved.
Both types of stocks have their pros and cons. And, I believe the best way to invest is to diversify your portfolio with both types of stocks. You can buy common stocks of reputable companies that have a strong standing in their industry.
Similarly, you can invest in small or medium-sized companies and buy their preferred stocks. This way, you’ll be guaranteed a dividend from its annual income and get compensated in case the company is dissolved or goes bankrupt.
- Keep an Eye on Influencing Factors
The political stability in a country can greatly influence stock markets. Other than this, economic, technological, and natural disasters also impact the stock markets.
Such factors are one of the fundamental reasons why most financial markets, including stocks, experience high volatility. And, as a stock market investor, it’s your duty to stay up-to-date.
Now, staying updated shouldn’t really be a problem. There are dozens of media, such as news channels, social media platforms, forums, and discussion groups, where you can read and analyze such news.
Frequently Asked Questions
Can a country have multiple stock exchanges?
Yes, a country can have multiple stock exchanges. For example, the New York Stock Exchange (NYSE) and NASDAQ are two major stock exchanges working in the U.S.
Which is the biggest stock market in the U.S?
NYSE is the biggest stock market in the U.S, with a market capitalization of around $25 trillion.