How to Invest in the Stock Market for Beginners

By Durgaprasad / Published on Saturday, 11 Feb 2017 20:38 PM

Want to make extra money while munching on a pack of Doritos, watching your favorite game? Look no further! Investing in the stock market is an easy way of making some extra cash without putting much effort. People who make the right stock options at the right time are able to make thousands of dollars. Before you join the shareholder bandwagon, it is important to understand the basic terminology.

Basic Concepts:

A stock is a share in the company’s ownership. So if you buy stock, you automatically become one of the many owners of that company. In other words, you are a shareholder. The more the stock is acquired, the greater the ownership stake will be. In return of your investment, you will be paid a dividend which is your share of the company’s profit. Keep in mind that if a company is not in a good financial situation, it may skip on paying dividends. If you buy common/ordinary stock, you will become an ordinary shareholder which will give you voting rights of the company’s Board of Directors but does not offer fixed amount of Dividend. On the other hand, if you buy preferred stock, you will not have voting rights but will be promised fixed amount of dividend.

What to consider before investing?

Before investing, you need to know that changes in stock prices come as a result of supply and demand. Stock price will increase if demand of the shares is more than that of the supply.  This usually is an indicator of a favorable financial situation. The first thing you need to consider is the company’s profitability. For this, refer to the company’s net income as well as per share earnings. In addition to this, review the company’s financial statements of at least 3 years back so you can analyze the company’s earnings trend. Another factor to consider is the risk associated with the company. Beverage and petroleum companies are the best to invest in because of their stability. As a beginner, you should avoid investing in tech companies because it usually is a big gamble.

How to buy stocks?

After you have decided which company to invest in, you need to know how to actually buy stocks. There are two ways through which you can buy stocks. The first is to use a broker. Full-service brokers provide personal attention but are expensive. Discount brokers, on the other hand, are less expensive than full-service brokers but they will not provide you with the personal attention you require. The other way is to use Dividend reinvestment plans (DRIPs) and direct investment plans (DIPs) which are company’s plans that for the exchange of minimal price allow you to purchase shares from the company directly. No matter which type you choose, you have to open a brokerage account either through the broker’s website or by emailing them. The next step is to place an order. If you are using the services of full-service broker, s/he will buy the stock for you. Keep in mind that you will have to share your personal information with them. If you are using a discount firm, then you would have to place the order online. If you are using DIP/DRIP, you can find the enrollment paperwork on the company’s website or request them to be sent to you. Just fill out the paperwork and you would successfully buy your stock.

That wraps up this tutorial. Now you have the full knowledge on how to buy stocks and make easy cash.