For some, stocks represent a lifelong journey toward retiring poolside. For others, day trading offers the siren song of an explosive income. No matter what your particular goals are, you’ll need to start learning stocks so you can make the most well-informed decision. Below are some tips and guidelines to help get you started.
Learning Stocks: The Basics
Perhaps the best way to learn stocks is to start with some basic vocabulary. Here are some basic terms and concepts that you’ll encounter as you learn more about investing:
Stocks vs. Shares
Technically, investors don’t buy stocks outright, but rather shares. A “stock” represents an individual company, one that allows investors to purchase partial ownership, while a “share” is an individual unit of that company’s stock. In other words, you can buy multiple shares in one company, but you can’t buy multiple stocks of that same company.
What Is the Stock Market?
The stock market is the marketplace in which investors and companies can buy, sell, and trade their shares of stock. Similar in name, a stock exchange is the specific place where these trades occur.
The two largest stock exchanges in the world are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Once a company is publicly listed on a stock exchange, anyone can buy, sell, or trade its shares.
What Is a Fund in Stocks?
When you purchase a “fund,” your money is pooled with other investors to purchase a small collection of stocks, which means that, instead of selecting individual stocks, your money will purchase ownership in multiple companies at once.
The most common types of funds include the following:
- Mutual funds
- Exchange-traded funds (ETFs)
- Index funds
Beginner investors can use a fund to jump-start their portfolio, and many stock brokers offer affordable options as well.
What Is a Stock Market Index?
A market index is a cross-section of the market as a whole, used to gauge the price movements of the market. You’ve probably already heard of indexes such as:
- The Dow Jones Industrial Average
- The S&P 500
- NASDAQ Composite Index
These indexes are not the same as the actual stock market, but they contain a sufficient number of companies to represent the broad economic movements of businesses listed on the stock market.
Strategies and Tips for Learning the Stock Market
For beginners, learning stocks also demands that you become familiar with tips and strategies for trading stocks. Here are some suggestions to help you get started:
Define Your Goal
Start your investment journey by defining your goal. If you are looking to save for retirement, for instance, you’ll be most interested in learning more about “buy-and-hold” stocks that grow over time. If you’re looking to make money through day trading, on the other hand, you’ll want to learn more about advanced stock market analysis that can help you react to changes in the market.
Research, Research, Research
The stock market is not a casino, but if you don’t research it carefully, then going with your “gut feeling” is just another form of gambling. You must take the time to research companies carefully and consider the following aspects:
- Price-to-earnings ratio
- Beta value (determines risk)
- Leadership structure
- Position in the industry
Stock research sites, online articles, and even industry publications can give you access to a wealth of knowledge that will empower your trading decisions.
Find the Right Broker
Investors will make trades through a stock broker, including today’s modern brokerage apps, but make sure you find a broker that aligns with your financial goals. Some charge administrative fees that can be prohibitive to casual traders, but that doesn’t mean you should skimp on your brokerage account. Others offer “active management” services, which means that they’ll make adjustments to your portfolio on your behalf to maximize your investments.
Diversify Your Portfolio
If you’re a new investor, you’ll probably hear a lot about the importance of diversifying your portfolio, which refers to the concept of having your stock market investments come from a variety of different sources.
Sinking all of your money into a single company only jeopardizes it if that company goes under, and even investing in several stocks in the same industry can put you at risk if the industry takes a sudden downturn. Instead, you should invest in multiple companies from multiple economic sectors to properly protect your investments.
Look for Value, Not Bargains
Warren Buffett, an authoritative voice in the world of investing, famously said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
In other words, Buffett is saying that it’s better to spend a little more to purchase shares of a high-performing company instead of saving money by purchasing shares of a mediocre one. When you start buying stocks, make your purchasing decisions based on the company’s performance. Don’t just grab stocks because they happen to be cheap.
The Best Way to Learn Stocks
In truth, there may be no one best way to learn stocks, but the following tools and tips can help you as you start learning the stock market and making investment decisions of your own:
Books, Articles, Podcasts
Books and podcasts are great for learning stocks, as are online articles that explain the performance of the market. No matter where you are in your investment journey, make a commitment to being a lifelong learner, always seeking to improve your game and make smarter choices.
Paper Trades
Sometimes, the best way to learn stocks is by actually trading them, but since that comes with its set of risks, many brokerage platforms offer something called “paper trades.”
These are basically stock simulators, allowing you to practice trading strategies without risking real-world dollars. Granted, no simulator can perfectly replicate the performance of the actual market, but investors who practice paper trading for a few months will be better equipped overall.
Stock Market Newsletters
For access to the most up-to-date stock market information, consider investing in a stock market newsletter. The best will provide snapshots of the latest financial news and stock market performance, which can help you make investment decisions and monitor the companies in your portfolio.
Stock Research Tools
Beginner investors should also get used to the idea of researching stocks carefully. The right stock market research platform can provide you with the resources you need to maximize your investments, and the best ones will also give you updates on the market that you can leverage to make quick decisions. They’ll also provide the tools you need to monitor your investments and watch your money grow.
Find a Mentor
There’s strength in numbers, even when it comes to the stock market, so having a friend to learn alongside can help you stay motivated. Even better, find someone who’s had more investing experience and can share tips on how to succeed or how not to repeat their mistakes!
Online Seminars and Courses
You’ll find no shortage of online seminars and courses geared toward investing strategies, and these may be helpful for new investors, so long as you tread cautiously. With so many self-proclaimed “experts” out there, it can be hard to find solid investing advice.
You may want to invest in a course such as LinkedIn Learning’s “Managing Your Personal Investments” class, but any seminar or course you take will be enhanced with stock research tools and updates that keep you on top of the market and your investment decisions.
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