Investing is a financial necessity. If we want our money to grow and to provide for us in our retirement, we need to place it in some type of instrument that will increase its value continually until it is time to draw it out.
One of the most time-honored techniques for doing so is getting involved in the stock market. Stocks have proven to be a profitable option over the decades, in spite of depressions, recessions, and downturns. As a result, a very high percentage of people choose to invest in the stock market.
What to Know Before Investing in Stocks
But, it is not something that should be done lightly. For all the people who have made millions in the stock market–or even just thousands–there are many more who have lost everything they put into it.
What do you need to know in order to be successful in the stock market? There are several things involved.
Have a Basic Understanding
The first is that you need to have a basic understanding of how the market works. Actions you take in the market aren’t always instantaneous, in spite of what your app may suggest. So first, you should know when transactions will occur–opening times, closing times, and NYSE holidays.
The next thing to know is exactly what it means to own stock. Owning stock is essentially holding an asset. It may go up or down in value, but that doesn’t matter until you sell it. There have been plenty of stocks that bottomed out in value, then rebounded to levels they’d never reached before. The shareholders who panicked and sold on the way down lost money. Those who rode it out did just fine.
Time Horizon
That brings us to another point before investing in stocks. You have to have an appropriate time horizon. Day traders make it look easy to buy and sell quickly, but anyone investing for the long term is not operating that way. The market will make you money if you give it time. If you want something that’s secure in the short term and will definitely grow in value, you should probably lean toward treasury bills or certificates of deposit.
Diversification is another important strategy. All stocks go up and down, but it is rare that they all do so at the same time. For that reason, it’s important to have diverse holdings. One group of stocks may slide in value while another grows and a third holds steady. Your overall basket of money will remain fairly solid in value. Putting all your money into a single stock is just too risky. Ask anyone who had money in Enron.
Education
A final necessity before investing in stocks is education. You need to know more than just how to get your hands on stocks, or when to turn loose of them, or how to retrieve your money after retirement. You need to stay informed. You need to keep yourself current on market news and likely growth areas to try to stay ahead of the evening news. If you wait to invest until everyone knows, you’ve waited too long. The key is to catch those opportunities early.
The stock market is a great opportunity for investing. You have the ability not just to make money for yourself but to provide an infusion of capital that helps businesses be more successful. Sometimes it’s the help of investors that pushes companies into the stratosphere and builds dividends for everyone.