Like any other pursuit, a successful way on how to invest money takes diligent work and knowledge. Investing is a topic that can be as broad, as deep and as complicated as you want it to be if you employ a complicated approach to investing. But, it can also be a field that can be as simple as you want it to be if you decide to use a simple approach instead. Just keep in mind that the simple approach often outperforms the more complicated approach.
The vast majority of individual investors jeopardizes themselves trying to pick investments that they think are going to make them rich fast. What they failed to realize is that a more passive, yet rational strategy that follows to the core principles of investing would perform much better. I’m talking about stock market investment.
When it comes to personal finance and the accumulation of wealth, many people talk about stocks as one of the most viable investment vehicles. This is because investing in the stock market can be a very exciting adventure and can give you high returns overnight.
But, what exactly are stocks? Well, in the simplest terms possible, stocks refer the ownership of a company’s shares. It means you, as an investor, owns a part of the company and has claims on the assets and earnings of the company which puts you among the list of many shareholders in the company.
Just so we are clear, this does not entitle you to the day to day running of the company. You need to have the majority of the shares for you to do that. You, however, may be entitled to elect the board of directors that will oversee the growth of your investments, which is the extent to which you can affect the decisions of the company.
But why choose stocks above all other investment vehicles? Stock investment is very popular among both novice and already established investors and here are some of the important reasons why people prefer stocks over many other investment vehicles.
- Investing in the stock market is generally simple. As compared to other investment vehicles, investing in a company share only needs for you to understand the present and the future financial position of the company you are thinking of investing in. This makes stock investing open for anybody with good will and ability.
- Many prefer stocks because it is easy to manage. You can build your wealth without having to show up at your work place. One of the benefits of investing in a stock market is you can sit at home while the money keeps rolling in your account.
- Also, unlike any other investment vehicle, capital needed to venture into this fabulous class of financial instruments is relatively low.
- History also shows that stocks outperform any other asset class over the long-run.
As an investor, you can invest in different types of stocks. Let’s have a look at these so you can make an informed decision when you want to invest.
When people talk about stocks, they mostly refer to common stocks because the majority of stocks is issued in this class. Common stocks represent ownership of the company and investors are entitled to a portion of return whenever a company declares profits. However, with common stocks, shareholders only share in the balance of the profits after creditors, debt holders, and preferential shareholders have had their claims in the company.
This also represents ownership in the company, but it does not come with the same voting rights as common stocks. Instead, they carry fixed dividends and investors are guaranteed fixed returns as long as they hold onto their investment. This is one of the difference when it comes to comparing common stocks to preferred stocks. With common stocks, dividends are not fixed and are not guaranteed. This is actually a good investment for people with extra cash who wants to earn money without any stress.
When you want to invest in the stock market, you have the option of investing in either a primary or a secondary stock. Trading in primary stocks means that you are trading in stocks that are being issued for the first time through Initial Public Offering or IPO, while trading in secondary stocks means you are trading stocks that are already issued.
In light of that, here are some tips that might help you determine whether you will be losing or earning money from your stock investments.
You will certainly make money from your stock investments if:
- You choose the right type and company to invest in.
- The company that you are going to invest your money in is outperforming the competition.
- There are other investors that trust the company. This is a great help should you decide that you want to monetize and sell your investment.
- The company is profitable to pay returns or interest of your investment.
On the other hand, you may lose your invested money if:
- The competition is outperforming the company where you have invested your money.
- The public or the consumers are hesitant to buy or do not patronize the products or services of the company.
- The company is not well-managed or is teeming with dishonest people.
- The company is making incredible claims with no proof.
- The company is manipulative, altering figures to entice their investors.
- Only a few investors are willing to take risks in entrusting their money with the company.
To avoid being on the losing end in stock investing, you must first and foremost analyze the company that you’re thinking of investing in, so you can better judge the value of its stock and profit from buying and selling it. Your greatest asses in stock investing is knowledge, and a little common sense wouldn’t hurt either. To succeed in the world of stock investing, keep in mind these key success factors:
- Understand why you want to invest in stocks.
- The timing of your buys and sells does matter.
- Do some research.
- Understand and identify the big picture.
- Consider buying in smaller quantities.
- Do as others do, not as they say.
- Keep more of the money you earn.
- Buy low and sell high.
- Don’t let your emotions get in the way.
- Create an entry and exit plan.
Whatever vehicle you choose to invest your money in, always keep in mind that although you have the power to reach your financial goals and achieve security of your finances, investing will not make you rich overnight. You will just end up frustrated if you believe that you can get rich quickly through personal investing. There is no such thing as the perfect investment because all of it has its risks.
If you really want to take control of your finances and have enough wealth to live the lifestyle you want for yourself and your family, you need to understand that it will require effort and time. Luck may play its part, but the best and perhaps the only way to become financially secure is to save and knowing how to invest money wisely.