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What is the Stock Market and How Do You Invest?

the stock market

The stock market is a vast and ever-evolving place, and there are lots of ways to invest in it.

The stock market is where new, seasoned, and veteran investors all pay money to buy a share (ownership) in a company which is public. These investments are typically stocks, and they can be sold on the stock market as well.

The stock market provides the marketplace for these public companies to sell shares, and for investors to buy and sell them. The goal of an investor using the stock market is to make money: to buy a stock low, and then sell it for a price higher than they paid. With a large volume of stocks, this can add up quite quickly. The goal of the company that has gone public, is to increase the worth of their shares, because the principals at these companies often own a lot of them, and can cash them out as needed.

If you are looking to invest in safe companies with a steady stream of income, you’re probably a dividend investor.

Are you willing to take on a bit more risk to go after bigger, faster rewards? Growth investing is likely for you.

Value investing is for investors who like to bargain shop.

Options trading is for those who like to invest based on statistical probabilities. And so on.

Since the Great Recession in 2008, the Federal Reserve has kept short-term interest rates—called the “federal funds rate”—at or near zero. That means the traditional ways of saving your money and watching it accrue—certificates of deposit, money-market accounts, Treasury bonds—are no longer viable.

Investing in the stock market is one of the few viable ways to have your money work for you these days.

Of course, stock market investing comes with more risk than a safe, low-yield savings account. Inevitably, not all of your investments will be winners.


How to Invest in the Stock Market

Investing in the stock market can be intimidating. Unless you majored in finance or are in the investment industry yourself, you may not feel confident enough to invest on your own. So you leave your annual contribution in the mutual funds you selected so many years ago or hand your account over to a professional financial advisor. You can invest on your own, though. And it’s not as difficult as it sounds.

Even if you’re willing to spend the extra money to have someone manage your money, you may not be better off. Some financial advisors just aren’t very good. Many fail to regularly beat the market. Others may not have your best interests at heart, convincing you to put your money in stocks you shouldn’t be buying because they take a percentage of every transaction.

When investing on your own, the most common way to buy a stock in the stock market is through a brokerage firm. Thanks to the internet, using a brokerage firm to invest is easier—and more affordable—than ever. There are a variety of popular online discount brokerage firms—TD Ameritrade, E*Trade, Fidelity— and none of them charge more than $10 every time you make a trade (and some of them no longer charge a dime!).

Now, you can choose to invest in just one or two stocks; that’s all some people can afford, and that’s fine. But for those who can afford it, an ideal portfolio consists of about eight to 12 stocks from a variety of industries (technology, banks, housing, retail, energy, etc.). It also makes sense to invest in different types of stocks—growth stocks, value stocks, dividend-paying stocks, emerging market stocks. More on the different types of stocks later.

However you spread out your investments, the goal is to put together a portfolio that’s diversified enough that you aren’t overly susceptible to a collapse in any one industry.

If you want to learn more about how to invest in the stock market, download How to Invest in Stocks: How Stocks Work, How to Calculate Return on Investment and Other Investing Basics for FREE.

What else would you like to know about the stock market, and investing? Leave a comment below.


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