Thought about earning some extra cash? You’ve most likely heard of the stock market but felt that it’s way too complicated for you to get into. This guide breaks down some of the baffling terms used in the world of the stock market into more understandable concepts.
So, what exactly is the stock market?
It’s important for you to grasp the meaning first. The stock market is a marketplace where stocks (goods and merchandise) or shares are traded. It may seem confusing at first glance, but all you need to do is know what certain abbreviations and indices are used for. On the financial news, you’ve likely heard of the market being ‘up’ or ‘down’. This is referring to the stock market indices rising and falling. The major world indices of the USA are Dow 30, S&P 500, Nasdaq, SmallCap 2000 and S&P 500 VIX. These represent the biggest companies in the nation and a list of all shares. A market index gives you a good indication of business movements and is a useful tool for investors to describe the market and to compare share values against one another.
Understanding what a ‘share’ is
If you’ve browsed the web, you’ve probably heard of the terms ‘share’ or ‘equities’. This refers to part-ownership of a company, meaning when you buy a ‘share’, you literally claim part of the business. Typically, the business needs to be a Public Limited Company (PLC) to be listed on the stock market, and anyone can buy or sell them. So, what does becoming a shareholder mean? It provides a range of rights and benefits such as potentially receiving dividend payments (a sum of money paid regularly). After all this, why do we want to buy shares? Simply put, to make money! If the company in which you own shares with pays dividends, you’ll receive payments. This amount increases if the company grows more successful and accumulates profits. If the value of the actual share rises and you hold onto this, it will continue to rise if the business gains more popularity. Once it gets to a stable value, you can sell this for a profit. This is a fantastic way of making money, especially if you’re self-employed. However, for this to work you need to know your stuff and not take any unnecessary risks.
Knowing the businesses and investing properly
Now, this is what requires your uttermost attention. It is essential to understand how to invest in the stock market before making any decisions. If you’re stuck in a muddle with your investments and need more organisation, use platforms like investormint.com to help you in managing your finances better. The biggest rule for beginners and the key to avoiding big losses in the future is this: invest conservatively. One way to do this is by investing in a broadly diversified portfolio of low-cost exchange traded funds and index funds. By doing this, you have a higher chance of receiving higher returns over a longer period.