The world of the stock market is very complicated and if you are a beginner and want to invest your money in stocks then, let’s simplify this concept in this article as much possible. But before we give stock market tips for new investors, first understand what stock market is.
What is the Stock Market?
In simple words, it is a place where various listed companies come together to trade their stock. Stock is simply a piece of the company. So when you buy a stock you actually own a piece of the company. Like in other business, if your business makes money, you take the profit.
But in this case, you own only a piece of a company so you only get a piece of the profit which is called a dividend. The more stocks you own more dividends you will be paid if the company makes a profit.
The value of stocks depends on the various factors of the business market such as the expansion of the business, loss or profit, rumors, and facts about the business. For example, if you buy Apple’s stock for $150 and after the launch of the new iPhone, the price of a share can increase in case of success of the new device or vice versa. So it is a little bit like gambling.
Types of Investors
Sine stocks jump up and down every single day, this type of investors predict which stocks will go up today. So they buy them and sell them once they reach the target on the same day or the next. But for that, you have to be very well financial educated and spend hours every single day analyzing the stocks to make the right prediction but not all people can do that so there is another type of investor.
Long term Investors
They put their money in the stocks and let it grow for years. So, in the long run, they make a fortune. You might be thinking what if I invest all my one in one single company and it crashes and that can happen as well. And this leads us to elaborate our headline topic.
Rules of Investment
Diversify Your Investments
The first rule of investment is to never put all of your eggs into one basket. In other words, never invest all of your money in one company. Instead invest them in many different companies so that if one company goes down, you are not going to lose a lot of money. You can invest in multiple companies such as Facebook, Apple, Coco-Cola, and even casino stocks as well. You can get a list of casino stocksand diversify your investments. The best way to do that is to invest through investment funds.
Choose a Good Investment Fund
Investment funds invest in hundreds of different companies. So when you invest in one of them, you are actually investing in multiple companies. If one out of hundreds companies crashes then, that’s not going to affect your investment significantly. The best funds are probably the ones that invest in S&P 500 which are the top 500 biggest companies in the world. They are safe and the average total return for the S&P 500 over the last 90 years has been 10%. This may seem a little less but it is much more than what get if you save your money in a bank.
Use the Power of Compounding
When Warren Buffet was asked what’s the secret of his success? He simply replied “my worth has come from a combination of living in America, some lucky genes, and compound interest. Compound interest works if you don’t withdraw return every year. Let’s say, if you are in your early twenties and you invest only $100 every month then by the time you retire, it will go to almost a million-dollar by the average of 10% return.
Start Early As Possible
As we said compound interest works best if you don’t withdraw your return every year and if you go for the long run. So this is why teens should learn about money since as a teen you have enough time to learn more about investing and with proper planning and investment strategy, you can make fortune after retirement.