Learning about investing is a lot like learning to ride a bike. At first, it may look intimidating or complicated dangers seem to be everywhere. That’s why it’s important to learn the basics in ways you can help minimize risk and protect yourself. After a good amount of practice and learning you can take the training wheels off and really start riding along the way the roads may change will be good days and bad days. And while learning to ride doesn’t guarantee you a spot in the Tour de France. Riding a bike could get you where you want to go a little faster. Let’s start with the basics and look at one of the most common investments stocks
2 methods you can make money by investing in the stock
A stock represents partial ownership of a company. When you purchase a stock you’re buying a piece for a share of a company by owning a share you own a small fraction of the company’s assets and have a claim on its future earnings. There are 2 methods you can make money by investing in stock
The first is through stock appreciation. When a stock you own goes up in value if an investor bought the stock at one price and the price went up the investor could then make money by selling the stock to another investor at the higher price.
The second way is through a dividend. This is a periodic payment issued by some stocks a dividend is a way for a company to give a portion of its earnings to shareholders.
How stocks work :
Here’s an example of how stocks work suppose. There’s a company called bull flag cycling. This company makes bikes really good bikes. The bikes are so good in fact the company wants to expand.So it can sell more bikes to people all around the world. To do this the company needs to raise money also known as capital. There are a few ways this company could do this. It could take out a loan but that would mean taking on a significant amount of debt or it could issue shares of stock by issuing stock which is called going public. The company can raise money without going into debt instead, it sells shares of ownership and a claim on future earnings to investors.
So let’s meet a typical investor. Our investor is someone who has a little extra cash. He’s looking for an investment that has the potential to offer better returns than a savings account. And he’s willing to accept the higher risks of investing in a stock. He thinks bull flag cycling is a promising company that’s likely to grow. Because of this he thinks buying a share would be a good investment. So how much does a share cost suppose the company decides to raise 1 million dollars and it decides to issue 1,000 shares of stock. Because each share represents a fraction of the company’s worth and there are 1,000 shares each share represents one 1000th of both like cycling because the company is raising 1 million dollars at the initial public offering or IPO each share would be initially valued at $1,000
Let’s suppose the price doesn’t change after the IPO. So our investor purchases a single share on the open market through his online stock broker for $1,000. Now let’s see what could happen to his investment if the company does well and profits increase the value of the company is likely to go up. As a result, the stock price may increase as well assuming the price of the stock goes up our investor could now turn a profit by selling his shares to another investor in the stock market. However, if the company’s ventures don’t go as planned. Its value could decrease and so could the stock price. If this happens our investor could lose money if he decides to sell the current price when it comes to investing in the stock market.
Finally, the basic goal is to buy when prices are low and sell once prices are high. But stocks in the stock market don’t always go up. Sometimes they stay the same and sometimes they go down and sometimes prices change quickly. Because of this stocks are considered riskier than other historically safer investments such as bonds or CFDs. However investors keep coming back to the stock market why. Because with this increased risk comes the potential for greater returns. Sadly investors take precautions to try to minimize risk. Like creating an investing plan adding diversity to their portfolios by investing in a variety of companies putting money. And other investments beside stocks and learning trading strategies for up-down and sideways market.