The stock market can seem enticing to individuals down on their financial luck or willing to play a long waiting game, but how can you start investing in stocks? In this short article, we aim to help you understand the stock market a little better by explaining how shares and stocks work.
Whenever you’re looking for way to earn a little extra cash, you’ll quickly come across stocks and shares as a solution. You shouldn’t be investing in stocks or shares if you can’t afford to. It isn’t a solution to debt, financial crisis, or a decision you should be making if you’re under a great deal of financial stress. Investing in stocks and shares should be done when you’re completely clear headed and financially stable. Only invest if you have the money to spare.
Before you invest, you should get an understanding of what shares are. Shares are like owning a little piece of each company you invest in, you can own shares yourself, or you can ground together with other people in a collective investment. When you own shares of a company directly, you become a shareholder. This means that you have the right to vote on some company decisions; this typically only happens if you invest in a fund, rather than just buying stocks or shares.
There are two ways of getting more money out of shares once you’ve invested in the shares of a company: If the company grows, your shares become more valuable, and some shares pay you part of the company’s profits each year. This means that in the first instance, you could sell your shares once they grow large enough, and in the second, you could potentially earn from the company via a dividend. Just to confirm that point: A dividend is made up from the money you get from a company because you own shares; not all shares have a dividend.
If you buy shares in larger companies, you’re more likely to get a dividend, but you might not get the same rapid growth in your investment that you’d get with another company. Shares with regular dividends are great for getting a regular income, but you should be aware that dividend earnings are still taxed; though, at a different rate. Small companies don’t typically have dividends.
Buying shares can be risky and tricky. Share prices can quickly rise or fall depending on the minds of the people; people consider whether a company is performing well enough, or whether it can operate effectively in the current economy. If a share price is reduced, your investment is reduced as well.
You can lower the risk of your investment by investing in shares for multiple companies. Only investing in one company is seen as high risk and may be a mistake that costs you a lot of your money. Investing in small companies is equally as risky as they do not meet the requirements for listing on the London Stock Exchange, so they’re often brought and sold on other markets.