The stock market is used to buy and sell shares of publicly traded companies. Here’s how you can start investing in the stock market.
Never in history has stock market investing been so accessible to a simple investor. However, if you are new to buying and selling stocks
What does the stock market mean?
A stock market is a group of markets and exchanges around the world, enabling the buying and selling of shares of listed companies and several other security-related activities.
Where are the major stock markets located?
Worldwide, there are 60 major stock exchanges. The largest stock exchange in France is the Paris Bourse, the largest stock market in the world is the New York Stock Exchange, with a total market capitalization of nearly $30 trillion.
The NASDAQ ($11 trillion), the Tokyo Stock Exchange in Japan ($5 trillion), the two largest Chinese markets, the Shanghai Stock Exchange and the Hong Kong Stock Exchange, with just under $5 trillion dollars each, round out the top 5. Aggregate market value refers to the total market capitalization of all stocks listed on the exchange.
What is a stock index?
As thousands of individual stocks are traded on the markets every day, it is much easier to track overall market performance rather than tracking every stock. To do this, we use stock market indices.
In North America, the main stock indices are the S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite.
Investors can buy investment funds that track the overall index of different stock exchanges. These index funds include mutual funds.
What is an action?
Before we dive deeper into how stock markets work, we should probably start by looking at individual stocks. This will be useful for anyone who is new to stock market investing.
Stocks, also called shares, represent a partial ownership interest in a company. When you buy stock, it means you own a small part of that company. As small as it is, this participation gives the shareholder certain rights, such as the right to vote and a right to the assets and profits of the company.
Remember that large corporations, like TD Bank or Apple, issue millions of shares. So when you buy 10 or 20 shares, it’s really a drop in the bucket from an ownership perspective.
Most importantly, even 20 shares of a world-class company are a valuable thing, and there’s a good chance you’ll be rewarded for it in the long run.
Common and preferred shares
There are many different classes of shares, but the two main types are common and preferred. As their name suggests, common stocks are by far the most traded of the two. Common shares are unique in that they carry voting rights.
In other words, shareholders have the right to vote to appoint directors to the company’s board of directors at annual general meetings and on other matters of vital importance.
Preferred shareholders do not have the right to vote, but they have a priority claim on the dividends and assets of the company should the company ever become insolvent. Unlike common stock, preferred stock pays a fixed dividend, with a higher average yield than common stock.
Why do companies issue shares?
Companies sell shares in order to raise significant capital to finance their expansion. While many of the world’s leading companies have started from the minds of a single entrepreneur, at some point considerable capital is required to grow the company into a multinational.
Large companies can also borrow to finance their growth. This is called debt financing. The challenge with debt financing is that the company must have fixed assets to secure the loans, which is not always possible.
Bull market versus bear market
You may have heard of the stock market as a “bull market” and a “bear market”, and you may have wondered what that means. A bull market occurs when prices are rising or are expected to rise in a large part of the financial market.
The most recent example of a bull market started after the Great Recession in 2008. Over the next eleven years, US stock prices rose steadily. This was a particularly long bull market, as it usually lasts less than five years.
As mentioned above, the 2008 recession is a prime example of a bear market. Prices are falling or expected to fall in all financial markets. This is exactly what happened following the US financial crisis, which was largely caused by the deregulation of financial markets.
What is the level of risk of stock market investments?
People who are wary of stock market investments often point out the risks involved. This can lead other people to think that the stock market is something to be avoided.Nothing can be further from the truth.
No stocks, whether mutual funds or ETFs, are guaranteed. And in the short term, any individual investment can lose value; some stocks are indeed very volatile. But if you invest in the stock market for the short term, you are doing everything wrong.
Short-term savings, that is, money you plan to spend over the next 1-3 years, should only be invested in low-risk vehicles, such as savings accounts , money market, GICs and other security grade investments.
If you’re investing for the long term (10+ years), you have time to ride out short-term market fluctuations, and experience shows you’ll always end up getting ahead by investing in quality stocks instead. than in low-risk accounts such as savings accounts or GICs.
But neither can you just throw money into a stock or mutual fund and expect to get rich . Our money is tied to our emotions, and humans often make poor investment decisions based solely on how they feel at any given moment. That’s why it’s important to seek professional advice before investing in the stock market and to keep a long-term mindset.
How to invest in the stock market?
There are several ways to participate in the stock market. You have the option of buying individual stocks, or you can buy a basket of stocks as part of a pooled investment, such as a mutual fund or an Exchange Traded Fund (ETF).
Mutual funds allow investors to own a well-diversified portfolio of stocks (and bonds) without the need for large sums of money. Many financial institutions allow you to create a mutual fund with a contribution of 25 euros per month.
The major disadvantage of equity mutual funds, however, is that the fees are very high. Investors can pay up to 2.5% in fees per year. Over time, this can eat up a significant portion of your return.
In recent years, investors have started turning to ETFs as an alternative to mutual funds. ETFs offer many of the same benefits of easy market access, diversification and rebalancing, but are available at a much lower cost. Some of the most popular ETFs charge less than 0.10% in fees.
Investing through a discount broker
In the past, most investors had to go through a stockbroker to buy and sell stocks. It was expensive and inconvenient, but at the time it was really the only option.
Today, the middleman has been removed, and you can buy and sell stocks instantly on a laptop from the comfort of your living room, using a discount broker. You can even trade on your smartphone. This investment is said to be “self-managed” because the investor makes the decisions and carries out the transactions.
To trade online, all you need is a self-managed investment account and an internet connection. In France, there are at least a dozen discount brokers to choose from. All major banks have their own broker and there are also several independent online brokers.
The two main advantages of self-directed investing are that it is inexpensive and convenient. Depending on where you hold your account, you can buy and sell stocks and ETFs for free and access your account around the clock 24/7.
Final Notes on Stock Market Investing
If you want to buy and sell stocks, there’s no better time to start than now. Online brokers such as Bux Zero , DEGIRO and others allow you to open an account and start trading online without having to visit a brick and mortar store. You will need to provide them with your ID and primary bank account number before you begin.
If you plan to trade stocks or ETFs, be sure to consult an investment professional before you begin. They can advise you on choosing the right asset allocation, how to diversify properly, and ensure that your investment goals match those of your account.