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Investing can pose a lot of questions for those of us who lack financial confidence. While some people have extra money lying around to invest, others may not have the same luxury and can feel nervous when it comes to purchasing stocks. It’s important to understand that the only hope some have for creating long-term wealth comes, in part, from investing in the market. Maybe you’ll win the lottery, start a billion-dollar business, or invent the next great technological advancement, but for the rest of us, investing in the stock market is a much more realistic, and possible way to reach our financial goals.
What Is Investing?
Investing in stock is an equity investment that signifies one’s ownership in a corporation. It essentially entitles someone to a part of the corporation’s assets and earnings. For common stock, it allows shareholders voting rights. However, the voting rights offer no guarantee in regards to dividend payments. For preferred stocks, they provide no voting rights but often guarantee a dividend payment.
The stock market has changed significantly over the years in terms of certification. Shareholders used to receive a paper stock certificate as security to verify their ownership of shares. Today, shareholder ownership is documented electronically as the shares are handled by a brokerage firm.
Investing in stock can be a complicated process and it’s best to treat your investments as if they were your business. So, before you dive head first into the stock market, it’s best to do your research. You can find reference materials provided by companies like Fisher Investments in the UK to help educate yourself on what is involved. The Share Centre is another source for free guides and has an entire section dedicated to new investors.
Reasons to Invest
Aside from the regular ups and downs in the market, stocks have offered considerably more growth than bonds over time.
If the downs seem unsettling, have no fear as it’s likely you can ride them out. The market has had a history of bouncing back and there’s no need to pull out immediately. Think of dipping stocks like this: Losses are only on paper unless the investments are sold. Stocks are purchased for the long haul so it only makes sense to ride them on the way back up.
If money is an issue, many have found success investing conservatively. Investing in stocks doesn’t mean that you have to spend your entire savings to own stake in a trending company.
Seek professional financial consultation before entering the stock market to ensure that money lost won’t have a negative impact on your savings.
Reasons to Avoid Investing
It’s no secret that the stock market can be scary and even dangerous for some. For example, buying a stock in an ongoing decline is rarely a good idea. A stock anywhere at a 52-week low is never a “good” buy and one might be better off investing elsewhere. The price of a stock is only a small portion of the investment decision, as the main goal should be purchasing reasonably priced stocks from good companies. Individuals tend to confuse bad stocks with value investing, which is buying undervalued stocks from good companies.
It’s important to understand that physics never come into the stock market equation. If a stock is down, there is no force that will pull it back up. People do lose money on the stock market and it can get ugly given the competitive nature of the business. That’s not to say you’re destined to have a bad experience when investing, it’s just best to go in to a financial situation with your eyes open and with all the information you can get.
It cannot be overstated that before you decide to invest your retirement, whether in part or whole, make sure you consult professional guidance and services to try and avoid any risks of walking away empty handed.