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Stock Market Investing Basics

MasterOfNone | Aug 11, 2009 | Views: 147 |

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There are some basic bits of information along with tips and tricks that will help you learn how to understand the stock market. Stocks represent ownership of a company. Each stock allows the stock owner to have a certain percentage or share of the company they are invested in. In some instances owning more than 50% of the stocks will give the owner control of the company.

There are two extremes in terms of investing in the market. There is low short term risk, which has greater long term rewards, as opposed to high short term risk, which has less long term rewards. The first example is a type of money market fund. The latter is a stock. During the short run, stocks are volatile, but in the long run they tend to even out. Between these two extremes are bonds. They are less risky than stocks and generate smaller returns. Also, bonds are more risky than money market funds.

There are many different versions of stocks. There are growth stocks and value stocks. Growth stocks are stocks of companies, which have a history of good performance, and they are expected to perform well in the future. Value stocks are sort of the opposite. These stocks are often underpriced and this can be because the company does not have a good performance history or the company has not yet been discovered.

Size of a company dictates stock market value. This is synonymous with market cap or market capitalization. Stocks issued from small sized companies are called small-cap stocks. In addition, there are mid-cap stocks and large-cap stocks, which are issued from medium and large sized companies respectively. Usually, bigger companies are less risky.

There are two categories of stocks to invest in. You can either hire a professional who will decide the best stocks to buy, or you can invest your money. Money can either be invested by purchasing individual shares of various companies, or you can invest in mutual funds that invest in various stocks. Although you can hire a professional, studies have shown that with a little research you can make just as informed decisions as the professional, and in some cases, you can do ever better than the professionals.

Mutual funds allow people to invest in diversified stocks. There will be some risky stocks, medium risk stocks, and not at all risky stocks. You can even invest in stocks that are riskier than others. Or you can invest in just large –cap stocks. There are many different options that you will have to consider when deciding what mutual fund to invest in. The easiest investment is an index fund, which is low risk and low returns short term. Index funds are a type of mutual fund that should be held onto for a very long time (20 plus years).

When investing, determine how much risk and loss you can afford. Knowing this will help you decide what to invest in and how fast you need to make a profit.

Tags: investing; finance; money; stocks;