Investing for Beginners – Stocks
Investing for Beginners
Now that we have gone over how to open up a brokerage account and how to figure out what type of portfolio we feel comfortable with, we have officially reached the fun part of investing. There are so many ways to make money investing in 2020. As an investor, you are able to choose from a long list of investments to invest your hard-earned money. Will you pick a specific asset class like stocks? Alternatively, will you concentrate on a specific industry like Healthcare? There are so many options! We have gone ahead and made a simplified list of the options, with each one having their own post, open to everyday investors who are looking to make a return on their money over a couple of years.
– Easy/Medium Difficulty
are shares – or parts – of a company that are publicly listed – meaning that
they are available to trade by everyone through a stock market or stock
exchange. When you purchase a stock, a transaction occurs where you receive a
small stake or ownership in the company in exchange for you providing a small
amount of funding that they can use to grow. As an example, there are currently
17,337,340,000 shares of Apple that make up 100% of the company. This means
that if you were to buy all 17,337,340,000 shares, you would own the entirety
of Apple and would be able to decide what direction the company would go in the
future. In this example though, it would be very unlikely that you would be
able to buy all shares of Apple as they are held by both investors and
companies alike. But, assuming we stay with this example, if you were to buy a
single share of Apple, you would technically own 0.0000000058% of Apple. So why
do you want to own stocks in the first place? Well, when you buy a stock or
shares of a specific company, this ownership comes with voting rights – meaning
that you have a voice in how the company is being run and you have the ability
to vote and elect a board member to the company’s board of directors – and you
also receive a portion of the profits that the company earns through EPS or
earnings per share. So the main reason why you want to own stocks is the
potential to make a profit on your invested capital (money) and to have a say
on how the company is being run.
you look at the long-term benefits of stocks, you note that they have a higher
return – more money in your pocket – compared to other investment options
because of their ability to appreciate (or increase) and provide capital gains.
Capital gains occur when you purchase a stock at a fixed price and it
increases. Also, when a stock price decreases, this is referred to as a capital
loss. As an example, if you were to buy 100 shares of Company A at $1, you
would have $100 worth of Company A shares. Now Company A has a great year and
makes a 20% profit. As an investor, you would benefit from this great year with
the shares of the company increasing by 20%. Therefore, instead of having 100
shares of Company A at $1, you would have the exact same amount of shares but
at $1.20. This would mean that you would have $120 worth of company A shares
which would be equal to a 20% return on your money as your shares are worth
$1.20 rather than $1. You would be able to pocket this profit if you do decide
to sell your shares and claim your capital gains.
note that there are two types of capital gains: realized capital gains and
unrealized capital gains. The only notable difference is that in the example
above, we have increased our value of Company A shares from $100 to $120. This
means that we now have an unrealized capital gains of $20 – the difference
between how much the shares are worth now and how much we paid for them – but
we do not have a realized capital gains as we have not sold these shares and
received any money from the increase in profitability of Company A. If we were
to sell these shares, than we would have a realized capital gains of $20 and
would pay taxes on our profits at the end of the quarter or year.
Although stocks tend to rise year over year and are extremely profitable, there is the potential for the stock to drop in price all the way down to $0. If bankruptcy occurs – meaning that the company is no longer able to survive and its stock drops to $0 – this means that you lose your investment in this specific company and you do not receive any return on your investment. Although bankruptcy does not occur often, it is a possibility that you should take into account when reviewing potential stocks.
are actually two factors that affect the stock price: 1.) The financial health
of the company and; 2.) market speculation. If the company is doing very well
and remains profitable, the stock price will increase. If people begin
speculating that this company will develop products that will benefit the
general population, this market speculation will cause the stock price to increase. Please note
that there is an unlimited potential for the stock price to increase but that
these factors can also negatively affect the stock price too.
speaking, stock markets have provided an 8-10% annual return and have remained
relatively liquid – meaning that you are able to buy and sell different
companies relatively quickly if you are not happy with a specific company’s
returns – and these are the reasons why they are so attractive to the everyday
investor. Investing in the stock market is a great opportunity for people who
are looking for ways to build wealth and help shelter their money from
inflation. The stock market is a great place to build wealth but like
everything else, the earlier you start, the better your chance to accumulate
there are many types of investments that are available to a regular investor.
It is up to you to take into account how much time you are willing to spend
analyzing and deciding what type of investment options work for you. There are
some options that are easier – and safer – but might not provide as big of a
return on your money. There are also pros and cons to each option and it is up
to you to figure out what option is best for you in your current financial
situation. Do not forget that as your situation changes, your investment
options will change too.
me know if you agree with everything above! Would you like me to add anything
else to this post? Let me know below!
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