How to invest in Stocks in 2017
Stocks are piece of investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets.
Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provides no voting rights but usually guarantees a dividend payment.
In the past, shareholders received a paper stock certificate, verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.
Investing in stocks can be tricky business. In fact, it’s best to treat all of your investment pursuits as a business. Heck, that’s what Benjamin Graham (Warren Buffett’s stock market mentor) recommended.
Before you buy your first stock, you should master the basics of stock investing. This won’t make you a great investor overnight, but when you understand the basics of investing you learn how to invest in stocks with confidence.
Investing is actually pretty simple. You’re basically putting your money to work for you so that you don’t have to take a second job. There are many ways to make an investment, stocks, bonds, mutual funds or real estate, and they don’t always require a large sum of money to start.
What Is Stock?
A share of stock represents legal ownership in a business. Corporations issue stock, usually in one of two varieties, common stocks and preferred stocks. Stocks are sometimes called “securities”, because they are a type of financial security, or “equities”, because they represent ownership (equity) in a business.
These are the stocks to which everyone is referring when they use the term in the context of portfolio management or the world of investing. Common stock is entitle to its proportionate share of a company’s profits or losses. The stockholders elect the Board of Directors who decide whether to retain those profits. For future growth or to strengthen the balance sheet, or to send some or all of those profits back to the stockholders in the form of a cash dividend, which is a physical check that gets sent in the mail or an electronic deposit that is sent to the brokerage or retirement account that holds the stock.
How Do I Actually Make Money from Investing in Stocks?
As an investor in common stocks you need to focus on total return and make a decision to invest for the long-term, at a minimum, expecting to hold each new position for five years provided you’ve selected quality companies with strong finances and a history of shareholder-friendly management practices.
There are two ways to access the stock market: directly and indirectly.
To invest in the stock market is always through a third-party broker. Direct investment means to buy the shares in a single company and to become a shareholder.
Beginners are best suit to use collective investment funds to access the stock market. This enables them to use the collective buying power of a fund to reduce charges on a small starting portfolio. ETFs may be cheaper than funds or trusts, as there is no active manager to pay for. However, as they simply track an index, if the index falls spectacularly, so will your investment.
All the investment vehicles have access through a broker or fund platform. Directly through the asset manager or through a wrapper such as a stocks and shares Isa.
Unless you can withstand a temporary or long term loss, on your investment, do not invest in the stock market.
The only person who can make money out of stocks and shares, are those who can hire a broker who can analyse the market, and buy or sell shares quickly.