Educating Yourself About Investing

For many years, investing in stocks was an opportunity reserved only for the extremely wealthy. Investment banks and brokerage firms catered to the upper class, leaving most people out of the stock market game. Over the last few decades, investing in the stock market became the most lucrative way for anyone to increase their wealth. The stock market has had a higher average return than both bonds and mutual funds over the last few decades. Major investment houses, brokerage firms and discounted, online investment platforms opened their doors to anyone with an interest in buying low and selling high. While most people rely on the experience and expertise of their broker or financial advisor, you can take control of your investment accounts and your future with an understanding of a few basic principles. It’s not investing, it’s investing for everyone.

Your stock represents your share in the ownership of the company. It is your claim on any future earnings and dividends. Buying stock in a company shows that you are interested in its long-term success. Profits are eventually paid out in dividends, and the more stock you own, the more dividends you receive.

Investing means that you have a basic understanding of the company and how it works. Pay attention to its earning statements, sales numbers, debt, and equity. You should also be familiar with the company’s annual report, quarterly reports filed with the Securities and Exchange Commission (SEC) and any third party publications like the Wall Street Journal. Your broker or brokerage site may also have research for your review. Once you are familiar with the company’s operations and management strategy, you can determine how much money you want to invest in the company.

Most investors are using the stock market to build long term wealth. Their portfolio is designed for the long term, so it is able to manage the highs and lows of the market. A diverse portfolio, meaning that you have invested in a number of different companies, industries, and areas, is the best defense against a market down turn and the best offense in a good market. By keeping an eye on your portfolio, you will develop a better understand of the market and how it’s upswings and down turns effect your investments.

When developing your investment strategy, consider not only the stock price, but the company’s current earnings and earning potential. Your own buying and purchasing habits can influence the stocks you buy, so take some time to consider where you spend your money. While stocks and their values are subject to the basic rules of supply and demand, no one can truly explain why some stock prices soar and others languish at the bottom of the bin. Investing may boil down to “buy low” and sell high, a savvy and sophisticated investor will create a more nuanced approach to this simple principle. Buying low and selling high is all relative to the capital you have available and your tolerance for risk and loss.