What are Stocks?
Stocks – you’ve probably heard of them before. But, like many others, you might not know exactly what a stock is. The word “stock” itself gives us a clue. In business terms, stocks are the number of assets (financial, physical, or otherwise) held by a company. Let’s consider what’s in stock in a small bakery. In this regard, the product is a sausage roll – a physical asset. Let’s say the shop owner has 100 sausage rolls. If the baker sells 50 sausage rolls, this means they’ve sold 50% of what they originally had in stock.
Stocks sold on the stock market work in a relatively similar way. The stocks are still assets owned by the company. However, in this regard, they’re financial assets, rather than physical products or company employees. When you buy a share in a company, you’re actually buying a part of that company. Now you might find yourself asking the question: why would you want to buy a part of a company?
Why Would Someone Want to Buy Stocks?
Companies are designed and run in order to make a profit. If you invest in a company (by buying shares in that company), you have access to a portion of the profits that they’ve made. Of course, the profits you can access are entirely dependent on the investment you originally made in that company.
Imagine you invest £1000 in ten shares from a company, purchasing each share for £100. You then let this investment sit for 10 years. Let’s say you’re looking to sell your share after the ten years is up. In this time, the company has grown increasingly successful, and each share is now worth 250% more than the £100 you originally paid. So, your original £1000 investment is now worth £25,000.
It might sound far-fetched, but people do actually make money this way. Simply by having patience and the dedication to begin investing, you can make money with very little effort. You don’t even have to start out with much – you can invest in a company with 1p, if you wish.
Key Questions to Ask Yourself Before Investing in Stocks
- Are you willing to take the risk of making a loss on your investment?
As with all investments, trading on the stock market runs the risk of making a loss on your investment. Or, you might even lose your entire investment altogether. It all depends on the intricacies of the market and how it fluctuates. While we can’t fully predict this with precision, there are lessons you can learn from in understanding how the market changes. It’s certainly worth reading up on resources beforehand. Getting to grips with exactly how stock investments work before you even begin can give you a huge advantage.
- What goals are you looking to achieve through investing?
Focusing on the goals you’re trying to achieve from the get-go will help you monumentally in deciding how you’re going to invest. For example, if you’re looking to save for retirement options; you might have more patience than someone who’s looking to invest in order to pay for something in the short-term.
- Are you dedicated to taking the time to learn how to invest successfully?
Investing in stocks isn’t an easy option that’s guaranteed to make you money. Rather, it’s a learning process that takes place over years of investing. Even the most seasoned investors are still learning today. That is; there’s no limit to the amount of insight you can gain when it comes to investing. Everyone has different levels of motivations with regards to learning about the markets. The more effort you put in, the more rewards you’ll see.
- What kind of time period are you willing to wait before selling stocks?
Answering this question may help you determine the strategy you’ll use to trade with. If you find yourself to be an impatient person, who wants to see results on an almost immediate basis; you might prefer day trading strategies. However, if you’re willing to wait a while and put in the time associated with managing and monitoring your stocks… Then longer-term strategies, such as buying and holding, might be the right way forward.
- What margins do you expect to reach before selling stocks?
Even without knowing it, most traders set themselves a goal limit before they begin to even consider selling their stocks. This limit can be devised as the result of a number of factors. These factors may be as varied from issues such as disposable income, to patience levels. Perhaps you’ll go through an unforeseen situation that pushes you to sell your shares before you may have otherwise planned to. It’s always handy to set yourself a goal for profits. This will help you stick to a dedicated routine, rather a haphazardly selling and buying whenever you feel the urge to do so.
- Is your investment portfolio diversified?
You don’t want to invest all your assets in one company. In diversifying your investment portfolio, you’re protecting your assets to a certain extent. For example, say you invest your life’s savings in one company. All your eggs are then in one basket! Instead of jumping in at the deep end and relying on this one investment, you should branch out. Look to invest in different areas of the market, in various brands and product offerings. Say one company then goes bust – it’s not the end of the world; you still have investments elsewhere that might be performing great.
- What are the best resources for learning how to trade?
One of the most commonly asked questions we come across: but how can I learn how to trade? It’s all fair and well if you’ve decided you want to start investing in stocks. That’s where you’ve made the first step!
However, in order to invest successfully – that’s a whole other story. You need to seek out the best resources in learning how to trade. While there is an abundance of resources out there, from YouTube channels to Facebook ‘moguls’ – not all of them are worth your time (and often; money). Instead, you want to learn to trade from the very best investors themselves. That’s where Trade Room Plus comes in handy…
As the UK’s leading stock market investor tutors and mentors, Trade Room Plus can help navigate your very first investments with ease. Watch the experts trade live, or even have them do it for you. The stock market is your oyster once you find a reputable mentor to work alongside.
Is Investing Better than Saving?
When you’re buying stocks, you’re investing savings, or disposable income. So, you might be wondering: is it safer to save money rather than invest? It’s a very valid question. When you’re saving money, you’re generally storing it in the account of your choice. Whether this is a building society or a savings account, you have the freedom to select the benefits with the greatest interest rates. These are the accounts that will make you the best returns on your savings each year.
When people invest money, they’re putting these carefully earned savings into what is a potentially uncertain investment. While they may profit by making much more money than interest could ever pay – they may also lose out. If a business goes under or profits fall, the value of shares decreases too. This can mean investors lose considerable amounts of money.
Compare this to your selected bank account with great interest rates. You’re earning a steady, predictable amount, year on year. Despite this, investing in stocks could bring you much greater returns. The only obstacle in your way is to learn the tricks of the trade. Once you’ve done this, you’ll be making money in no time – simply by taking a small risk and investing in other companies.
Of course, this is a common question asked by many who begin their journey into stock investments. It’s worth considering whether you’re willing to take a slight risk with your savings or investments. If you’re not willing to take any risks, a savings account might be the better option. If you’re willing to take risks that could result in huge profits – investing in stocks is the best way forward for you. Read on to find out more about what you’ll need to start investing in stocks. Spoiler alert: it’s not just a rich man’s game!
Do I Need a Lot of Money to Invest in Stocks?
As we mentioned earlier in this article – you do not need a lot of money to invest in stocks. There’s a huge predisposition surrounding the stock market, and it’s often associated with high-flyers that earn six figure salaries each year! However, this is simply not the case. Buying and selling stocks isn’t limited to the rich and wealthy. As we can now invest in stocks from as little as 1p a share, every single one of us reading this article has the potential to start earning money from essentially nothing.
The key to doing this, however, is a little more complicated. It takes time to understand the stock market. Sure, you might invest in a stock and see great results from the get-go. However, even the most lucrative stock market investors are still learning as they trade. The mistakes, the bonuses; they all come together to form the unique level of knowledge that every expert stock investor has access to.
So, the answer to this question is no. You don’t need a lot of money to invest in stocks. But you will benefit from putting the time into learning about how stocks work. Find the right resources to do so, and you’re on to a winner! In order to get you started on the right track, we’ve devised a useful list. This list contains the most essential tips you should consider before jumping into investing in stocks. Here goes…
What You Need to Know Before Investing in Stocks
- Education is everything
Sure, you might have read around about investing in stocks. You might have a somewhat clear idea of how it works. Educating yourself goes a long way in investing in stocks. Experience goes even further. Don’t assume you know it all just because you’ve made a few pounds of profit. You’re always learning!
- You might lose your investments
One key thing to remember throughout your investment journey is that there are risks involved. You might lose your whole investment. Using foresight and calculating exactly how you can afford to potentially lose can be a great way to work out what you can definitely afford to invest.
- The stock market isn’t a ‘get rich quick’ scheme
Patience and practice are at the heart of investing in stocks. You can’t just funnel money into stocks with wild abandon and expect them to make you rich. Unfortunately, the world doesn’t work that way. Instead, you need to invest not only money, but time, into learning about the markets and how they function. In time, you’ll find you can easily make decisions that might benefit you way further down the road.
- Never invest the funds you will actually need
As with every investment, you’re taking a risk. We’re sure we covered this one earlier! However, some investors fall into the trap of investing money into stocks that they actually need to survive. For example, you might have a little left over from your last paycheck that you know you should put towards next month’s rent. Instead of putting it towards rent, however, you invest the amount in shares. These shares then plummet in value, causing you to lose the majority of your investment. So, where will next month’s rent come from now? Always remember the risks involved with investing in the stock market.
- Shorter term investments may come with more risk
For many, investing in the stock market is a long, winding road. It can come with many ups and downs, before (hopefully) resulting in a long-term profit. Those who choose to invest in the short term are therefore more likely to experience more volatile shifts in their investments. If you stick with an investment, and they’re slowly but surely on the up – you might make a predictable amount of profit with just the right amount of patience.
- Finding the right brokerage for you takes time
A brokerage is the company or service you’ll use to funnel the buying and selling of shares through. Different brokerages come with a variety of pros and cons. Some might offer exclusive customer service packages, though these might come with higher fees. You want to find a broker that understands your level of expertise, who can get to grips with your expectations… and of course – who has great reviews from past traders.
- Setting unrealistic goals will set you up for failure
You might set out to invest in stocks with great expectations. Don’t do this. If you go into trading with minimal expectations, each small profit will feel like a win! Many traders say psychology is one of the key components to becoming a successful trader. This isn’t an untrue statement! As long as you’re not making a loss, you’re winning. Seeing each small victory as a triumph will help you gain the patience needed for longer term investments, that might make you even greater profits. Don’t set out expecting to make a certain amount on a specific investment. Stock markets don’t work that way, and you might be setting yourself up for failure.
- You shouldn’t always ‘go with the flow’
Investors who are just starting out might find it liberating to go with the flow. In the very beginning, this can be a great way to familiarise yourself with a fluctuating market. Take the time to analyse growth and losses, seeing whether they match up to other financial affairs happening in the news. Over time, you’ll gain a level of clarity regarding when you should buy and sell. Each trader has their own preferences, and you’ll develop yours over time. Once you’ve put the effort in to learning about the markets, going with the flow will seem like an altogether futile effort!
- Remain logical, not emotional
Emotions often get in the way when investing. We can become emotionally attached to a particular investment, clinging on to the unrealistic idea that it will eventually be a profitable venture. However, the best investors know when to stop with the emotional side of things, and how to effectively remain logical in making decisions.
Trade Room Plus Can Make Your Investment Journey a Success
Trade Room Plus is the UK’s number one forex trading mentor and investment advisor. Even for those just starting out with investing in stocks, they can help get you on your way to financial security. With live trading rooms and an array of useful resources, you can teach your way to trading success. Don’t miss out on their exclusive content. From insightful YouTube videos and tutorials, to informative blog posts – Trade Room Plus offer all you need to get started. Don’t be put off by the perceived technicality of investing in stocks. Trade Room Plus use their friendly, approachable skills to make their content accessible for all. Get started today!