If you are new to the world of investing, you’ll likely want to start your investment activities by participating in the stock market. Over the last 50 years, stocks have proven to be one of the most reliable investment options based on annual “return on investment” or ROI.
As a novice investor, you need an education about the stock market and investing in stocks before you make your move.
No one should invest their money in something they know nothing about. Keeping that in mind, the following information can serve as your guide into the world of stock investing.
What Are Stocks?
A share of stock represents one share of ownership interest in the underlying corporation. The price of any given stock is determined on the open market by supply and demand with demand being much higher for successful companies.
As an investor, you can purchase shares of any stocks listed on US public stock exchanges such as the NASDAQ or the New York Stick Exchange (NYSE).
For what it’s worth, you also have the ability to invest in stocks listed on public stock exchanges in other countries, though you might want to confine your investment activities to the US stock market until you have more experience.
Types of Stock
At the most basic level, there are two types of stock: common stock and preferred stock. Common stock entitles the stockholder to a proportionate share of a company’s profits and losses.
Common stock shareholders also have voting rights with one vote allotted for every share of stock they hold. Voting takes place at public shareholder meeting where business is conducted on the corporations behalf.
The most important vote is the election of a Board of Directors whose job it is (among other things) to determine how a companies profits are used.
Profits can either be reinvested in corporate operations or distributed to common stock shareholders in the form of a dividend.
Preferred stock shareholders do not have voting rights. What they do get is the right to be paid a predetermined stock dividend per share on a predetermined date.
Other than putting money in a savings or money market account, all investments come with financial risk. As it relates to stock investing, your maximum risk will always be the amount you invested in any given stock. Your potential reward will theoretically be unlimited.
What you need to realize is that some stocks have more upside and downside potential for a variety of reasons. It’s up to you to decide your risk tolerance and make investment decisions based on that.
Stock Investment Strategies
As a novice stock investor, you’ll want to keep things simple. If you are looking for the best stocks to buy for beginners, you might want to start out by seeking investment advice from investment professionals. As time passes and you make more trades, your confidence as an investor will increase, giving you cause to start making more decisions on your own.
Early in your investment career, you should confine your investment strategy to focusing on high profile companies that perform consistently well year-over-year. You would be well-served to diversify your stock portfolio to prevent having too many eggs in one basket.
If you are unsure about investing in individual stocks, you might want to consider investing in a mutual fund. A stock mutual fund represents a full portfolio of stocks managed by professional investors.
As an investor, you can purchase shares in a mutual fund with an eye on the mutual fund increasing in value due in large part to fund holding stocks that perform well.
As you mature as a stock investor, you’ll find it easier to accept more risk for greater reward. You can achieve this strategy goal by investing in stocks attached to emerging companies.
You might also want to consider investing in stock options as a way to protect existing investments or provide other ways to create income.
When you are ready to start looking for the best stocks to buy for beginners, you’ll need to open a brokerage account. Your choices include a managed account or an online account your manage yourself. Once your account is established and funded, you are ready to join the ranks of a stock investor.
This is an overview of stock investing for beginners. Before you take the plunge, we encourage you to do a little more research to ensure you understand the journey you are about to take.
Author: Jessica Davison