It’s hard to take out a small chunk from your earnings to save for a rainy day or an investment fund. But if someone has a spare chunk of change that they're willing to invest somewhere, they should consider learning a bit about the stock market.
Those familiar with the stock market may have some hesitation about investing in it, and it’s perfectly understandable after experiencing or hearing someone else’s experience of the bear markets.
The bear market is simply a period in the market cycle where the charts are all mostly red and the stock market value is continuously declining. People saw a huge percentage of their portfolios drop in value during the recent dip. The flip side of this scenario is a bull market, and this is why market sentiment is said to move between fear and greed.
When it’s all red and value is down, there is a lot of fear in the market, but when it’s green and value is up, everyone wants to join in believing that they will end up making millions. Historically, many profitable investors buy when the value is low and sell when the value rises.
A stock market is a place that hosts investors and allows them to buy and sell company shares. In modern times, online exchanges are that place. Investing in the stock market means buying into a portion of a company’s ownership, so you profit when the company profits because you have a share in the company.
Do not mistake this for actually owning physical property in the company. You cannot barge into Netflix and tell them what policies they should make, or what products and services they should offer because you own a share in the company.
A company will offer its shares for the public to buy, as a method of raising capital for the business and to ensure an adequate supply of funding to facilitate the business. Selling shares is a better alternative for companies than borrowing money because startups may not have enough assets to use as collateral for the amount they need to borrow. So when you buy a share, you automatically have a stake in the business. Shares can also be called stocks, equities, or securities.
Despite the risks, investing in stocks has been said to have one of the highest probabilities of generating a good amount of profit for investors in the long term, but it requires a disciplined approach.
One way of profiting from investing in stocks is through dividends. When a company makes a profit, a part of it may be paid to all shareholders as dividends, although, not all companies do this. It’s not an obligation, rather it’s a choice, and the company announces whatever dividend amount will be distributed to all shareholders.
The bigger companies are more likely to pay this kind of dividends, but there is also no guarantee that it will continue to be paid subsequently.
Another way to profit is by selling the stocks when they rise in value. Because the value of stocks can increase over time, taking profits at those points helps to grow your capital.