7 Things To Know If You Want To Start Investing

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If you're new to investing in stocks, the entire process can seem complicated and overwhelming. Not to mention the tons of unfamiliar terminologies, such as market cap, ETFs, brokerages, ask and bid prices, and so on. The truth of the matter is that the process of buying and selling stocks is very simple once you know how it works. Cast your worries and fears aside. This article will tell you whatever you need to know, and you'll have a much better understanding of how to invest in stocks when you've finished reading it.

First, you'll learn when you should start investing. Next, we'll tell you why you should start investing, and we will then explain what stocks are. We'll go over the different types of stocks, and after that, we'll explain why you should invest in reliable companies and not just listen to random tips. Next, we will walk you through how to evaluate a company by analyzing metrics. Finally, we'll touch on what to do next after you've gotten started.

1

When To Start Investing

If you're currently mired in credit card debt or other debts, your first step will be to settle off your revolving credit. The gains that you make from investing in stocks will never keep up with the interest that you pay on your debts. Eliminate your debts first, then squirrel away about six months' worth of expenses for your emergency fund. You have no business investing until you have cash saved up to cover any contingency that may crop up. As for your debts, once you've paid off all your credit lines and outstanding credit card debt, you'll have more money to set aside for investing.

Only invest what you can afford to lose. The best way to make money from the stock market will be to hold on to your stocks for as long as you can. An American business magnate once said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

2

Why You Should Invest In Stocks

Historically, the stock market has proven to be one of the best vehicles of wealth generation. These days, crypto seems to be all the craze, with everyone mumbling about Bitcoin and NFTs. However, stocks are more stable and sold by companies that actually provide value. They're less volatile than crypto trading and a more predictable, albeit slower, method of wealth generation.

Stocks also yield better returns than leaving money sitting in a bank and earning a little interest that never seems to keep up with the rate of inflation. In the past, investing in stocks was a bit of a hassle. But now, with online brokerages like Fidelity, Merrill Edge, RobinHood, etc., you can easily invest in stocks with just a few taps on your mobile phone. The fees are ridiculously low, and these apps are extremely intuitive and straightforward to use. You don't have to be a mathematical genius to invest in stocks.

3

What Stocks Are

Basically, a stock is a share of ownership in a company. When you buy shares, you essentially own a "share of the company." That's as simple as it gets.

Companies sell stocks for a variety of reasons. They may need money to grow the company or pay off debts. Sometimes, they may wish to invest in research and development or fund a new product line. By selling shares, they're raising money. One could look at it as a type of crowdfunding (just that it's done via the stock market).

4

Different Types Of Stocks

Generally, stocks fall into three categories:

  • Large-cap
  • Mid-cap
  • Value stocks

To know what these terms mean, you'll first need to understand market capitalization (market cap). Don't let your eyes glaze over yet; it's simple. Market cap refers to the total value of the company's share of stock; this number is constantly changing within a reasonable range because people will constantly be buying and selling the company's shares. The formula to calculate a company's market cap is market capitalization = shares outstanding multiplied by the share price.

The bigger the company, the larger the market cap. Any company with a market cap of over ten billion will be selling large-cap stocks. Examples of large-cap stocks are Adobe, Microsoft, Amazon, Facebook, etc.

Mid-cap stocks are shares sold by companies valued from two to ten billion dollars. These are the middle-range stocks. Examples of mid-cap stocks are Dolby Laboratories, Upwork Inc, Ciena, Lumentum, etc.

Value stocks are stocks that are currently underpriced. These are companies that don't have a high share price because they're not popular yet. However, they may show immense potential. Investing in them can lead to your stocks appreciating in value many times over once the company takes off. This is a waiting game that can yield immense reward or result in loss.

Which stocks you choose to invest in will depend on your budget, risk tolerance, and experience. If you have a high budget, you'll be able to purchase large-cap stocks. If you have a smaller budget, you may invest in mid-cap stocks. If money is not an issue and if you're willing to take risks, value stocks or small-cap stocks will interest you. Experienced investors are constantly looking for value stocks to invest in because of the potential profit in the long run; these investments are riskier, so you must be aware of your risk tolerance before plunging in.









About Author

Blanche Garner

Blanche Garner is a resident of Tallahassee, FL, and is a public relations manager. It brings her great joy to share her experiences - there are a lot! Some of Ruby's passions include aquatic biology, basketball, and jazz.