We’ve all heard that “money makes money”, right? And this is certainly true. There are many ways in which money can make more money, but this nearly always happens through investment.
There are tonnes of ways to invest money. You can invest money in yourself via an education or setting up your own business, alternatively, you could invest in a friend or family member who is trying to build something, or, if you’re looking for a steadier investment, you can look to the stock market. Indeed, if you look at the richest people on earth, nearly every single one of them is rich because of stock: either because of stock they own in their own businesses or stock they own in other businesses – or even a combination of the two.
Stocks exist to enable companies to raise money so that they can realize their ideas and turn them into businesses. What’s more, stocks are also relatively passive forms of income, meaning people can be invested (and therefore profit) in a company, without having to work for it.
What Is Stock?
Essentially, stock shares are parts of a business, if you own stock shares, you own part of the business.
There are two types of stock: common stocks and preferred stocks.
As its name suggests, common stocks are the more, well, common, type of stock. Anyone who owns common stocks gets there share of the company’s profits or losses. This is accomplished by the stockholders voting in a Board of Directors, who then decided whether the company should keep the profits (e.g. to continue to grow the company) or pay the stockholders via a dividend.
So, for example, let’s say you invested in Mr Green stock and the company did well in the previous quarter making a tidy profit. However, the company has plans to re-invest this money into its growth plan, in order to create more profit in future. You won’t see a return on your money this quarter, but you may well see a much bigger return in a few months’ time.
Preferred stocks, meanwhile, are effectively a higher rank of stock and guarantee dividend payments to holders at certain times, prioritized over the common stockholders.
How to Make Money in Stocks?
One of the greatest misconceptions about stocks is that they should be bought and sold rapidly, however, this is generally a terrible strategy.
Instead, before deciding to invest in stocks, you should evaluate a company and decide if it is heading in a positive direction and expected to grow. If so, it’s value will also rise, along with your stocks.
Investing in stocks is a long-term investment, and one for people with cool heads. Prices will always go up and down, and there’s very little benefit in monitoring stocks on a daily – and certainly not hourly – basis. Build a diverse set of stocks that you know and trust in, and then leave them be safe in the knowledge that even if one or two struggles, the others will flourish. Also, don’t be sucked in by fads. Invest only in what you know and understand.
How Do I Start Investing in Stocks?
Although it may seem extremely intimidating and confusing to start investing in stocks, it is actually very easy to do so. Indeed, the easiest way to do so is with a stockbroker. And, with the advent of the internet, this is much easier than it once was. Stockbrokers are effectively the middlemen in the stock world and will connect you with businesses in which you can buy stock. They take a commission on such sales but handle the whole transaction for you, ensuring that the process doesn’t take much of your time and remains a passive source of income.
It is important to spend some time comparing stockbrokers before choosing one to go with. You want to find one that is accessible to you in the way you want. So, if you want to manage your investments online, you want to check out their website and see if they have an easy-to-use online portal in which you can control your stocks.