For new investors going into the stock market, there are many different types of stock to invest in for you to make great returns from. Around 54% of Americans have stock in their portfolio, by not investing in the stock market you may be missing out on a great way to bring in wealth. Some traders choose to invest every day and trade hundreds of times in a single day. Others prefer to buy a stock when it is low priced and then hold on to it for many years.
Investing in public companies always comes with risk, although some company’s have more risk than others. For beginners to the stock market, to make money in the stock market you first must understand how it all works.
What Are The Types Of Stock?
As an investor, you can buy two types of stock, common stock and preferred stock.
Common stock is the representation of your ownership in a company. Buying common stock shares gives you rights within a company. So, if a company is looking to elect a new CEO then you will have a chance to vote for them. This is important because you can have direct impact on a stock price of a company. As a common stock holder you are also given dividends.
Preferred Stock also represents your ownership in a company, but only if you hold preferred shares. If the company goes into liquidation, preferred stock holders will get paid before common stockholders, so the risk is less for preferred stockholders. Although, you will not get a say in how the company is run.
How To Invest In Stock?
Like with all investments, you win some and you loose some. By researching a company/sector thoroughly and investing accordingly you will have fulfilling returns. Good research will also take the risk out of a stock if you are investing in it.
If you are looking to invest long-term then you should buy a stock at a low price and wait it out. Over a 5 year period or longer, any downturns will be ironed out. If you have invested in a good company then any short term issues will be taken care of, ensuring the long-term stock price increases. For long-term trading, do not be tempted to take your money out straight away, even if the stock price of your main investment in falling slightly. Just wait until the price increases once again and then sell when you are ready, not when the “experts” say to do so.
By diversifying your portfolio you allow room for market falls. So if a sector such as energy crashes, then your other stocks will be performing as usual.. ensuring that you do not loose all of your money on a single company or commodity.
Making Money From A Stock
You can make money by buying at a low price and then selling the stock once it reaches a higher price. For example, if you buy 100 shares at $10, then sell those shares for $20, you will have earned $1000.
The other way to make money on a stock is to keep your shares and accumulate dividends. A dividend is a part of a company’s earnings that’s given to shareholders. You will be paid dividends quarterly, although some companies do not pay them. Some dividends yield a 5% return. So if you invested $100 then you will get a return of $5.
If you are looking to invest long-term in a stock then carry out expensive research, looking at the change in its share price and any issues the company might face, such as a new CEO or lack of growth. By researching thoroughly you can anticipate their share price increasing and decreasing. Research can be carried out by reading stock charts and stock market blogs.