People invest in the stock market because they would rather put their money to work for them than allow it to lose value over time if they tuck it away in a savings account. Since the rate of inflation is higher than the interest offered by a bank, parking money in a savings account is not a viable long-term wealth-building strategy.
People who invest have confidence in the market. This confidence comes from acquiring knowledge. They learn everything they can about the stock market, including details like the dates of the NYSE Holidays 2019 calendar. This knowledge about the market’s environment, conditions, and operations give them the confidence they need to buy and sell stocks.
Let’s take a look at what you should know about stock investing. We will also examine some of the reasons people can be hesitant to do it and what to do about that fear.
What You Should Know
Starting in the stock market is as simple as finding a brokerage and setting up an account. From there, you can either rely on a broker’s advice or choose the do-it-yourself route because stock investing is not that complicated.
As a new investor, you probably have some questions like how much money you need to invest. You may also have more basic questions like what is a stock and what is a mutual fund.
Let’s take a closer look at these common questions so that you can dispel any misconceptions that you may have that stock investing is some arcane science.
How Much Money Do You Need to Invest?
While you can start investing with a large sum of money, you don’t need to start that way.
If you have saved for a long time and have a large amount to invest, then you can buy the more expensive shares that cost hundreds to thousands of dollars.
If you are starting with a small amount, say, only a few hundred dollars, then you can buy stocks that only sell for a few dollars. You can also buy exchange-traded funds, which will give you a wide range of assets like stocks, bonds, or commodities and that operates on the basis of arbitrage. Since ETFs are traded like stocks, they are affordable.
What is a Stock?
An individual stock is a share in a company. You can buy a few shares of a company to get a feel for how the whole thing works. Later, you can build a diversified portfolio out of a diverse collection of stocks.
What is a Mutual Fund?
While it is easy to buy a few shares in a company if you only have a few hundred dollars, you will need at least $1,000 to buy a mutual fund. The main advantage of a mutual fund is that it’s a managed investment that is already diversified, so it lowers your risk.
Which is Better: Stocks or Mutual Funds?
Individual stocks hold the promise of a meteoric rise in value, but the difficulty is in finding a stock with this type of luminous future.
Conversely, although a mutual fund will give you more pedestrian returns, they will offer a steady return on investment because the rise and fall of assets will average out.
For most people, mutual funds are the better choice, especially if they don’t want to spend a lot of time researching companies and are investing for retirement.
Why People Are Afraid to Invest
People are afraid to invest because the outcome is always uncertain. It’s natural to be hesitant about investing. After all, you may lose money. Since you worked so hard to earn the money that you have, it feels awkward putting it into something that you’re not certain will give you a high return on your investment.
The best way to overcome your fears is to learn as much as you can about investing and then do some paper trading. Knowledge and practice will help you decide if this is the right course for you. Once you know what to do and practice doing it, you will be in a better position to evaluate whether your fears are real or imaginary. You might be surprised to find that many of your opinions about risk are not accurate.
In conclusion, investing in the stock market isn’t for the chosen few who have the time, money, knowledge, and experience to prosper from buying and selling shares. Anyone can invest. It’s not as hard as you might imagine. And it doesn’t require large sums of money to begin.