It is no secret that people spend a lifetime learning about stocks as well as the markets, such as the NASDAQ, where stocks are traded. Sometimes, stock market investing can seem daunting and tricky if you do not know and understand what you are doing. This is especially true during uncertain times. The good news is that you can get a basic understanding of what stocks are and how they are traded in only a matter of minutes. However, like chess, the number of different and intricate possible moves, the selling and buying of these shares, often makes every investor’s results and profits different.
For example, note that when you decide to finally try your hand at stock picking, you should do your homework. This is because your goal is to find a good value – particularly if you want to hold on to an asset for some time, such as two years. Also, there are several rules for investing in the stock market, and one of them is to buy low and sell high.
Although there is no definite way to maximize profits and time your trades perfectly, there are certainly some facts about stocks that will help you make better decisions. Here are five facts you should know about stocks before investing your hard-earned money.
- Stocks Represent Ownership in a Company
You should know that when you purchase stock, you’re buying into a company. And the performance of the underlying firm or company is what gives the stock its value. In other words, stock represents a claim on the underlying company’s assets and earnings.
And when you purchase a share of a company’s stock, you will become a partial owner of the company. Note that as you buy more stock, your ownership stake in that company becomes greater.
- Stock Values can be Unpredictable
In many cases, the value of a stock is often a matter of judgment. For instance, two analysts or investors may view the same stock differently. Also, it is worth noting that investors don’t always act predictably, especially when it comes to news, such as expansion plans, about a company. So, Oxford Biomedica share price can vary because of many reasons, such as the flow of information, international data points, and announcements.
While investors and analysts often view stocks as a safe investment strategy, in the long run, nothing is guaranteed. Keep in mind that the stock market is volatile, particularly in the short term.
- Mutual Funds are Collections of Investments
Did you know that a mutual fund is a collection of various investments, usually stocks? While mutual funds can comprise stocks entirely, they can also include other kinds of investments, like bonds, foreign currency, and precious metals, such as gold. We can define a mutual fund as an investment that pools funds from investors in order to buy stocks and bonds.
Keep in mind that stock mutual funds often aim to provide long-term growth, unlike government bond funds, which tend to focus on income.
- Dividend – The Main Source of Income
A dividend is a regular payment or distribution that companies make to their shareholders. Did you know that dividends are like interest you earn in a savings account? This means you will get paid regardless of the stock price.
Note that the rising dividend stream not just offers an effective hedge against inflation but also helps accelerate the payback on investment. The dividend amount is decided by a company’s board of directors.
While dividend-paying stocks are not necessarily immune from price declines, they certainly offer a degree of insulation against the risk that other stocks don’t. There is no doubt that dividends mean a lot to most investors as they provide you with a steady stream of income.
Many companies issue dividends at regular intervals, typically on a quarterly basis. Did you know that investing in dividend-paying firms is a very popular and effective strategy for many traditional investors? This is because income often provides investors with a sense of security and peace of mind during times of economic or financial uncertainty.
- Long-term Investing is Best for an Average Person
Keep in mind that trying to purchase or sell shares based on an economic data point or a quarterly earnings report is a game for many automated trading platforms, but not the average Joe. While many investors tend to speculate with various short-term investment strategies, an average investor is better off investing their funds in a well-balanced stock portfolio geared towards various long-term goals, such as retirement.
Sometimes, better opportunities come when a certain stock or sector is dismissed by analysts and the market and languishes despite steady and favorable economic results that will produce a long stream of stable profits.
The truth is, when you buy a stock, you can never predict or know what the outcome of your stock investment will be. Note that it’s only when you have sold a stock that you will realize a profit or loss. And time gives you the excellent opportunity to average more stock gains than losses.
Final Thoughts
When done prudently and responsibly, investing in stocks is the best way to grow your wealth. Also, most types of investments, such as mutual funds, are accessible to almost anyone regardless of income level, age, or career. Use these five essential facts about stocks to make better decisions.