Investing in stocks and shares is the most common way for beginners to gain investment experience, and the cornerstone of many portfolios.
In simple terms, investing means putting aside money, having that money work for you, and then potentially acquiring a nice pay out in the future.
Investing your money today can mean a better tomorrow for you and your family.
The ‘trick’ is to increase your returns while decreasing your costs. Sounds simple, but there are a few things you need to know before taking the plunge.
Trading on the stock market has the potential to generate a better return than a savings account. However, it is well worth to remember that if you choose to invest your money, it will always come with the risk of loss. There is no guarantee that you will end up with a profit.
So, what exactly are Stocks? Stocks, also known as equities, are normally issued by a company as a fundraising tool. In other words, companies raise capital to fund their business – e.g. to raise money to allow the company to launch new products, expand or buy equipment – by selling shares of stock. When you purchase shares of stock in a company, you buy an ownership interest in that company, in the hope of getting a return on your investment.
By doing so, you can achieve certain benefits, which might include the right to vote during shareholder meetings, receive a share of the company’s profits (called a dividend), and an increase in the value of your shares if the company’s stock price goes up… of course the opposite applies if the price of the stock goes down.
As a stockholder, you will own shares of a company, but you usually will not have any direct control over a company’s day-to-day operations, so this does not mean that you can march into the company’s headquarters and demand a top-floor office complete with enormous desk and personal assistant, or that you are automatically entitled to company discounts and the like.
There are two kinds of stocks:
Those who invest in Common Stock can vote at shareholders’ meetings, have a more direct involvement in the company and receive dividends at regular intervals.
On the other hand, those who invest in Preferred Stock do not have voting rights, but they receive dividend payments ahead of common stockholders. They are also given priority over common stockholders if the company goes bankrupt.
Investing in stocks as a beginner can feel overwhelming and even scary for many would-be investors, notwithstanding the potential long-term gains.
The first thing you need to do before investing your hard-earned cash is to decide what kind of investor you want to be.
At deVere, the first thing our highly skilled and professional financial advisors do when you make the decision to become our client, is sit down with you in order to discuss what your long-term life and financial goals are, as well as what level of risk you are willing and prepared to take.
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Investing in the stock market does carry an amount of risk, as any type of investment does, but, when done well, it has been proven to be one of the most efficient ways to build up an investor’s net worth.
There are a huge number of stocks to choose from in a vast variety of industries. Stocks are also one of the most heavily traded markets in the world. Stock is traded on a stock exchange, where people place bids and offers to buy and sell stock. The amount of trading carried out in any trading session makes it relatively easy to buy or sell shares.
Stock exchanges have been around for over 200 years.
The New York Stock Exchange (NYSE, founded in 1792) and Nasdaq are the two largest exchanges in the world. Stock exchanges enable the exchange of shares in publicly listed companies.
There are a few ways for a company to go public, but the most common is for a company to hold an Initial Public Offering (IPO), whereby a private company can go public by selling its stocks to the public. Once all the necessary procedures are finalised, the company will be listed on a stock exchange and its shares will be available to purchase and sell. Stock prices on exchanges are governed by supply and demand.
The words ‘stocks’ and ‘shares’ are frequently thought to be synonymous, but the two terms do not have exactly the same meaning.
Buying and selling stock would be very difficult if you could only measure ownership interest in the amount of money invested. This is where shares come into play.
While stocks represent an investment and partial ownership interest in a publicly traded company, shares are the smallest denomination of a particular company’s stock. In this way, share by share, people can easily calculate the value of their investment.
|Represents ‘ownership’ in a publicly traded corporation or business.||Is a unit of measurement of your ownership interest in a company.|
|Does not tell you how much you own.||Tells you the exact amount you own.|
|Is not specific.||Represents a specific piece of ownership interest in a particular company’s stock.|
At the end of the day, the decision to invest in stocks in a particular company or another is determined by your preferences, time horizon, risk tolerance, and investment objectives.
At deVere, we know that one of the most important concepts within investing is diversification, which is used to balance risk and reward to create a diversified portfolio which holds a basket of varying assets. It is sensible to buy stock in several companies, rather than just one to build up a diversified portfolio, so if one of the companies you invested in does badly, you don’t lose everything you’ve put in.
Trying to diversify your portfolio on your own can be difficult, so it is always wise to seek the recommendations of the financial experts at deVere to advise on the best investment decisions, according to your risk appetite and individual financial circumstances.
Another thing deVere can help with is deciding whether you will go for Growth Investing or Value Investing. Growth investors opt for companies that offer strong earnings growth in the present, while value investors opt for stocks that appear to be undervalued in companies that may have fallen out of favour but still have promising prospects to perform well in the future.
Deciding where to invest is a very personal decision, which means that, as a potential investor, you need tailor-made, customised advice, support, and guidance.
The deVere Group has the ability to do business in over 100 countries, so we can help our clients – whatever their nationality and wherever they are in the world – to make the investment choices which are best suited to them.
How can I make money from Stocks and Shares?
When you buy stocks in a company, you are making an investment in that company and its profits. The main reason to invest in stock is for you, the investor, to earn a return on your investment. Through stocks, anyone can invest in any publicly listed company, even the most famous and successful in the world.
One way to make money is by selling your stock when in appreciates (goes up). In simple terms, the rule of thumb is ‘buy low, sell high’. Some investors prefer to hold on to stock for as long as they can. Another way is by receiving a dividend (share of the revenue) when the company is doing well. Not all types of stock pay out a dividend, but many do.
How can I minimise my risk when I invest?
We all know the saying ‘don’t put your eggs in one basket’. Imagine you invest all your money in one company or industry, and that company goes bust or the industry suffers a serious setback. You will be a big loser there. On the other hand, if you divide your money between 10 companies or industries or classes, then your portfolio risk is lower as, if one of them makes you lose money, the other nine will make up for it. This is called diversification. By investing in assets that are not related to each other, if one part of your investment portfolio falls in value, the others may go up. Why not discover Catalyst – a low cost, savings app by the deVere Group that offers modern investment products to help you build a globally diversified, long-term portfolio?
What is a Stocks & Shares ISA?
Everyone in the UK aged 18 or over can open an Individual Savings Account (ISA) which offers tax-free interest payments, as long as you do not pay in more than your allowance each tax year. You can use all or part of this ISA allowance to invest in a type of account called a Stocks & Shares ISA, where you can invest in funds, bonds, and shares in individual companies; this means that there is the risk that your investments can go down as well as up in value. Basically, stocks & shares ISAs hold investments instead of cash. A stocks & shares ISA is therefore different from a cash ISA, which is a savings account you do not pay tax on.
Can I lose money when I invest in Stocks?
Although historically stocks have enjoyed the very strong rates of returns over the long term, like any other type of investment, there is also a degree of risk. Rather than going up, it is completely possible that stock will instead go down in value. Stock prices fluctuate for a variety of reasons, from market volatility to company-specific events, such as a media crisis, political events, public perception or even a grand-scale environmental disaster. Contact us online for more information, news, and insights.
What is the best way to start investing in Stocks and Shares?
Since investing is a highly personal transaction, there is no one-size-fits-all handbook that you can consult. However, there are some pointers that should serve you in good stead if you have decided to enter the exciting world of stock and shares. First of all, you should discover what kind of investor you would like to be and what your risk threshold is. Do some research and review your financial situation before making any big decisions. Decide how much money you are willing to invest. Most importantly, seek advice from the experts. As one of the world’s leading independent financial institutions, deVere can help with all of the above and much more. Let our financial advisors take the headache out of investing for you to allow you to achieve your financial and life goals.
© 2010 – 2022 deVere Group. All rights reserved.
© 2010 – 2022 deVere Group. All rights reserved.
© 2010 – 2022 deVere Group. All rights reserved.