A Beginners Guider to the Stock Market
Investing in stocks provides a great opportunity for investors as stocks tend to regularly outperform gold, bonds, or even treasury bills. As a result, you can say that there is a lot more activity in a stock market.
There are plenty of ways to invest in stocks. For example, you have options like ETFs, mutual funds, index funds, and even individual stocks. You can also engage in investing domestically or in foreign markets.
But there are many things a beginner must first consider before investing in stocks. You have to consider your personality and the level of risk that you are willing to take on. Being sure about yourself before you engage in trading can help diminish your exposure to risk down the road.
Here are some questions you should ask yourself:
- Am I a risk-taker?
- Do I prefer taking chances or going with a “sure” thing?
- How will I react to a 40% drop in value over a short period of time?
- Am I prone to panic?
The answers to these and similar questions will help you to decide which type of equity investment is best suited to you. For example, if you decide that you’re not a risk-taker, then it’s better to invest in mutual funds. As these a diversified, it reduces your exposure to risk.
How Much Knowledge Do you Need to Start Investing?
The answer to the question depends on what kind of investment you’re going to go with. If you’re going to put your money in mutual funds, you don’t have to do too much homework as the expert fund manager will do the needful.
If you go with an index fund, there’s even less you need to do as they move up or down depending on the type of company or industry that it’s designed to track. It’s individual stocks that will eat up your free time as you need to do a lot of research to make informed decisions.
So if you’re starved for time, going with individual stocks may not be the best idea. Investing individually in the stock market also requires skill that’s developed through learning and experience. So you have to be sure that you’ll have enough time to invest.
But if you have the time to dedicate to buying and selling stocks, there are plenty of markets to invest in:
- Japan Exchange Group
- London Stock Exchange Group
- New York Stock Exchange
Diversification is Key
Like the old saying goes, don’t put all your eggs in one basket and it really hits home in this scenario. The more you spread your money out, the less risk you take on.
So it’s best to buy shares in not only different companies but also across different industries. The stock market offers plenty of options like commodities, real estate, consumer goods, and even insurance. But regardless of what you choose to invest in, make sure that you spend enough time thinking and learning about it first.