There are some important things a person should know about stock market investing before they make a financial commitment. It’s important for them to know about the potential risks as well as rewards.
People who want to invest should have a good understanding of the process involved with buying and selling an investment in the primary as well as secondary marketplaces and more.
1. Owning Stock
When a person purchases a share of stock, they are a part owner of the company.
Should the purchased stock be publicly traded, there is going to be numerous shareholders for it at any time. The amount of the company a shareholder owns is determined by numbers of shares they purchase.
All investors who own a portion of the company are entitled to share in the profits when they occur. This is known as a dividend. Some companies do not pay a dividend. All of the company’s profits are automatically reinvested into the company. In this case, an investor will make money with the value of the stock increasing. It’s also possible for a company to pay its shareholders dividends based on its profits.
2. Invest In Markets And Not Individual Stocks.
When people consider investing into the stock market, they need to realize buying a stock does not mean they are invested in the market.
When a person wants to start investing, they need to consider putting their money in a market. This is often a country’s stock exchange. In the Philippines, there is the Philippine Stock Exchange (PSE). It has an index of over thirty listed companies.
3. Type of Investor
A person new to investing will need to decide how they want to approach their investing activities.
There are two main types of investors. They are passive and aggressive. A passive investor will try to make successful investments in the market that require a minimal amount of work. The goal is to make low-risk investments with a dependable return.
An aggressive investor is someone who tries to beat the market. They will invest as much time as necessary studying it to find any investment that will provide them with the best possible return. A new investor should set investment goals based on their individual temperament, tax bracket as well as resources and then commit to them
4. Commissions And Taxes
When a person begins to purchase and sell different types of investments, they will likely be required to pay a commission. This may need to be paid each time an investment is bought or sold. It will take time to learn the proper way to accommodate for commissions. Too many commissions could have a negative impact on a person’s investment results.
It is also common for investing to result in a taxable event. Experts recommend people new to investing speak with tax professionals concerning any possible tax liabilities.
5. Market Fluctuations
When a person begins investing, they should not look at gains as something that will always happen. Investments losing value are also usually only temporary.
An investor must mentally prepare for these types of fluctuations with their investments. They can’t be bothered by them. It’s important an investor focus on the benefits they will experience during the lifetime of an investment.
During difficult times successful investors are usually the ones who can ignore the market fluctuations and remain committed to their investment strategy.
It’s important for people who want to start investing realize it will take time for them to build up a valuable portfolio. As their experience and knowledge of investments and investing increases; so will their abilities as an investor.