Investing in the stock market
Investing in the stock market is a good way to invest your money if you are a long term investor. Stocks are relatively low risk investments if you choose to invest in large well established companies. The risk profile can be a lot higher if you invest in penny stock and emerging markets. Investing in stock is always associated with a higher risk than bonds and saving accounts. Stocks are despite this in my humble opinion a better investment than bonds or other low risk instruments since they offer you a better return. Stocks have a better risk/reward ratio and have historically given the best return over time.
What are Stocks?
Each share is an ownership stake in a company. Each share in a company gives you a small ownership in the company. If a company have 100 shares and you own 1 then you own 1% of the company. Most companies do however have millions of shares and your ownership stake from owning a few shares is very low. Most (but not all) shares give you the right to vote on questions that are put in front of the share holders at the share holder meeting. A shareholder does not have to right to interfere in how to company is ran day to day. In theory all shareholders have the same rights regardless of how many shares they have but in reality a owner with more shares will have more influence in the company.
How do you invest in stocks?
Investing in stocks is very easy. Buying a stock is no harder than it is to shop online. Knowing which stocks to buy can be harder. To invest in stocks you will need an account with a stock broker. Many banks are stock brokers but I recommend that you register an account with a specialized stock broker. You can read more about why here.
Once you have an account (and have deposited money into it) you are ready to buy your first shares. Simple locate the company you want to buy shares in within the trading platform and open the trading page for said stock. On this page you will find a lot of additional information that will help you to decide whether or not to invest in the stock in question. You can buy shares directly from the page. Simple enter how many shares you want to buy and at what price. Once you done this you are ready to press the buy button.A buy order will be issued once you click the buy button. The stock broker will then try to buy the shares in question on the stock market. There is no guarantee that they will succeed. The chance that they succeed will depend on what price you are willing to pay and what shares are available on the market.
In most case the broker is able to buy the shares for you quickly. Once the broker buys the shares they are added to your account and the buy order is listed as filled.
Most stock brokers offer a number of more advanced features that you can use to get even more control over your trading.
When is stocks a good choice
Investing in stocks is a good idea when you are looking to make long term investments and you are willing to assume a certain level of risk to be able to get a higher return on your investment. The stock market is volatile and can go up or down in the short term. The stock market has always given good returns over longer time frames. Long enough that you as an investor can wait out a dip in the market before you sell your shares. You goal should ideally be to own stocks for 10 years or more before you sell them. Many successfully investors invest in dividend stocks and their goal is to never sell a stock once they bought it.
When are stocks a bad choice?
Stocks are not a good way to invest money that you know you are going to need within a certain time frame. If you know you are going to need your money in one year then it is better to invest them in stocks or in interest bearing account. The risks associated with investing in the stock market is a lot higher if you are only going to invest short term. This is due to the volatility of a stock market. If a crash occurs you might en up losing a lot of money because you have to sell your stocks. If you on the other hand are investing long term then you can wait until the stock price goes up again before you sell and are not affected by these temporary drops in the market.
Never invest money that you know you are going to need within two years in the stock market. If you have money invested already and you know you are going to need the money soon then it can be a good idea to sell at least a part of the stocks and place the money in a more secure asset until you need it.
Which stocks should i choose to invest in
I do not give investment advice and I do not recommend individual stocks. It is up to you to choose stocks that are suitable for your investment portfolio and your desired risk profile. Make sure to make your own analysis of a stock before you buy it. Never trust recommendations blindly without doing your own research.
Whit that being said. I personally prefer to invest in dividend stocks that give me money in my pocket without me having to sell the shares. Dividend stocks are stocks in companies that gives a part of their profit to the share holder each year. How much you get varies greatly between different companies. Dividend stocks are a great way to build a stock portfolio that gives you a yearly salary as well as increases in value.