Living off with only one source of income, which is your salary, isn’t going to cut in the long term. Instead, you might want to take your money and put it into different kinds of investment vehicles in order to make passive income.
One of the investment vehicles you can use is the stock market. If you’re just starting out, here are some essential things you need to know about the stock market.
- Appetite for Risk
When investing in the stock market, you open yourself to a substantial amount of risk.
In the long term, stocks can offer a safer choice of investment compared to others. However, it’s a different story when investing short term. In the short term, the prices in the stock market are usually very volatile and can swing both ways drastically. If you’re looking into the short term, you need to watch the stock market every second.
In the long term, you’re exposed to lesser risk compared to the short term. However, you should still be cautious because returns are never guaranteed, especially in the stock market. Any market news can trigger movements in the stock markets.
- Diversify Your Investments
A diversified exposure in different stocks will mitigate the risk you take when you trade in the stock market. As a rule of thumb, don’t put all your eggs into one basket. Hence, it’s advisable that you invest in different company stocks and not just in one company; diversify your portfolio by buying stocks in different industries.
For example, you can buy 100 stocks in a mining company, 200 stocks in a real estate company, and 500 in a financial institution. This way, if the mining industry is in the wind, your whole portfolio won’t be exposed to that. Spread out your investments and exposure in order to reduce your risk exposure.
If you’re looking for which stocks to buy and news related to it, you can check out Pepperstone for more information.
- Do Your Own Research
There are many intricacies in the stock market. Before anything else, you need to take time to do your own research and learn everything about the stock market. Focus on this before you put some money in.
Join talks or seminars regarding investments and do your own research online. Read up on books about investments and talk to people who have actually invested in the stock market.
- Buy Low and Sell High
The cardinal rule in the stock market is to buy low and sell high. For newbies, seeing low prices might trigger emotions of panic and lead people to sell at a loss. However, when trading, you need to be able to control your emotions.
The perfect time to buy stocks is when prices are low. To realize your profits, start selling your stocks when the prices are high. That’s where you can earn money.
- Need For A Broker
When investing in the stock market, you need to have an account with a brokerage firm. Individuals can’t just go to the stock market and start buying up stocks like it’s a department store or an order at a restaurant.
To be able to trade in the stock market, you need to sign up with a brokerage firm, open an account, and deposit your money there. Nowadays, with the advances of technology, you can start trading through an online brokerage website. As long as you have a computer, smartphone, and a stable source of internet, you can trade in the stock market anywhere in the world.
- Stocks Pay Dividends
When you own shares of stock in a company, you can have income without selling your stock shares. There are certain companies that pay out dividends to all their shareholders every now and then.
What happens is that a company will announce the date when dividends will payout and the cut-off dates for eligibility. Then, on the designated date, the company will give out dividends on a percentage basis, depending on the amount that you invested. This can also be a source of passive income for you even if you haven’t sold your stock shares, yet.
Now you know the basics of the ins-and-outs of the stock market. Just remember your appetite for risk and mitigate it by diversifying your investments. Set up your accounts and start trading while receiving dividends as well.
The next step is to do more in-depth research and start investing in the stock market. To start trading in the stock market, talk to experts as well as brokers to know more.
Angela Morgan has been blogging ever since she was a teen. Now that she has her own family, she makes sure to allot time in blogging, and sharing her ideas online.