Investing in the Stock Market: Getting to Know the Basics

Investing in the stock market can be profitable ? if you know the basics.

You need to do three things if you want to live a comfortable life during your retirement years ? live below your means, reduce your debt, and invest your money wisely. Needless to say, you can save a substantial amount of money by keeping debt at a minimum and living a relatively simple life.

So, what should you do with your savings? Some people? prefer to put their money in the bank or in any kind of bonds. While these options can ensure the safety of your investment, they only pay a little more than the inflation rate. On the other hand, more aggressive investors prefer to put their money where there is plenty of opportunity for growth ? in the stock market.

However, investing in stocks can also be tricky and carries a significant amount of risk. There is no guarantee that the company from which you have purchased your stocks will pay out dividends. In addition, you stand you lose everything when your stock goes bankrupt.

Taking these things into consideration, you really need to arm yourself with enough knowledge to increase your chances of winning. So, what do you need to know before you start putting your money in the stock market? First, you need to know the basics.

Understand what the stock market is. Some people perceive the stock market as a place where people gamble their money in a win all, lose all fashion. Actually, this is pure misconception. In reality, the stock market is a complex system where stocks or shares of publicly traded companies are issued and traded. It is where investors sell or buy a particular security. It employs an adversarial system of trading since one investor will profit while the other will suffer losses as a result of the exchange.

Prices are bound to go up or down. Stock prices rise and fall due to a number of factors which may include market sentiment (the psychology or mindset of market participants), economic growth expectations, valuation, momentum and Central Bank activity.

To get the most from your investment, you may need to invest in markets where GDP is accelerating and in countries where the Central Bank is lowering interest rates. Experts also agree that market sentiment is the most unpredictable factor that affects the prices of stocks so you need to focus on the long-term rather than the short-term when investing in the market.

Know the best time to buy or sell. Buy stocks when most people are generally pessimistic and sell when people are overly optimistic. However, you also need to exercise extreme caution and determine why the price of a particular stock declined, and if other stocks in the same industry suffered the same fate. If the industry performed well, there may be a problem with the particular company so beware. You don’t want to go down with a sinking ship, do you?