A Beginner’s Guide to Investing in the Stock Market

Investing in the stock market is a way to grow your money while you’re busy with working and living through daily life. Many say “the stock market is too risky to invest in,” which can be true if you’re not smart with your money. Investing in index funds and holding those funds for a long time, at least 3-5 years, is the safest and best way to grow your retirement funds. On AVERAGE, a recession lasts about 11 months, while the average bull market lasts 4.5 years. So people who think it is too risky to invest in the stock market are uneducated. Investing in low-risk stocks with dividend yields is also another great way to grow your money. The great Warren Buffet defines investing as “the process of laying out money now to receive money in the future.” It is never too early to start investing, even starting at $100 is excellent. You can invest in a small index fund.

Understanding the basics of how the stock market works can immediately change the direction and plans for your financial future. If you learn correctly and don’t let your emotions get to you, the market can serve as a vehicle for increasing your net worth and reaching your financial goals for retirement.

While learning the stock market is an extreme learning curve, in the end, it will be a stepping stone to achieving financial freedom. Spending time and energy in learning the stock market will have a tremendous economic benefit towards your financial wealth.

The purpose of this blog and article is to inform Generation-z on the importance of investing in your future, the benefits, and the risks of the stock market I hope you enjoy!!

What is a stock?

A stock (also known as “shares or “equity) is a type of security that signifies ownership of a public or private company. When you purchase a company’s stock, you’re buying a small piece of that company, called a share. Investors buy stocks in companies they think will go up in value; if that happens, the price of your stock increases and can be sold for profit. A 10% gain on a stock investment is me and Chopperman’s goal for every stock/index fund we purchase. The prices of stocks tend to fluctuate due to supply and demand like any other open market as stock becomes more enticing in the marketplace, the more likely the price increases while when the stock is less enticing, the price falls. The news affects the market in everyday companies like Seeking Alpha, Marketwatch, and Bloomberg News, all release announcements every day that affects stock prices.

There are several ways to classify a stock

  • Income stocks-Income stocks are the least volatile classification of stocks and offer investors steady dividends.
  • Penny stocks– The term “penny stock” refers to shares that trade at no more than $5 each. The issuing companies are often small start-ups that need to raise capital.
  • Speculative stocks-Speculative stocks are issued by start-ups, by companies that are developing new products or technologies, by companies exploring untapped, often foreign, markets, or by companies that have undergone drastic management changes or financial restructuring.
  • Growth stocks-Growth stocks are issued by companies that consistently reinvest profits back into the business to fund development.
  • Defensive stocks -Defensive stocks are sound investments during economic downturns because the industries and companies that issue the stock are unaffected by, or even profit from, financial slumps.
  • Value stocks-shares of a company with solid fundamentals that are priced below those of its peers, based on analysis of price/earnings ratio, yield, and other factors.
  • Cyclical stocks- Cyclical stocks increase in value when the economy is strong and lose value during economic decline.
  • Size- The size of a company refers to its market capitalization. This is just a fancy term for the “market value” of the company. The term may sound complicated, but the idea is straightforward.
  • Sector-Sector refers to the area of the economy that the company belongs to.

The primary sectors are classified as 

  • Real estate
  • Materials
  • Telecom
  • Technology
  • Industrials
  • Healthcare
  • Energy
  • Consumer staples
  • Consumer Discretionary
  • Utilities
  • Finance

Benefits of Stock Ownership

Stocks can provide you with many benefits in your financial portfolio. The main advantage of stocks has growth. While they are the riskiest of the three primary asset classes (stocks, bonds, and cash), they have historically outperformed those classes to bring the most wealth to there buyers. This is EXACTLY why stocks are looked at as one of the best ways to achieve financial freedom. The reason why is because when you own stock in a company, you get to participate in the growth of the company as well. The board of directors in companies are there to ensure that the company is operating in a way that rewards shareholders. If the news reports that someone on the board has left the company, it usually causes the stock price to decrease because of investor fear. Companies are always in constant competition with one another (and themselves) to increase their shareholders’ equity.

Because of stocks long term growth potential, stocks tend to serve as a great way to beat inflation and is a way better alternative than a savings account. A dollar today is worthless in 5 years. And it is worth significantly less in 20 years due to inflation. Stocks serve as a hedge against this and make your money grow instead of sitting in a saving account that the banks “claim” to be gaining value in, but really, your money is either staying the same or decreasing in value due to inflation.

Some companies reward their shareholders with dividends. Dividends are a return of capital, back to the shareholders, which originates from the companies net earnings. This is why more mature companies and industries with steady cashflows tend to pay out incomes. You could also by dividend ETFs, which are a slight risk and give you an excellent return on dividends every quarter. Dividends can play a significant role in the overall recovery of an investment portfolio, especially when we are in a recession.

Risks involved with Stock Ownership

Returns are not guaranteed- While stocks have historically performed well over the long term, there’s no guarantee you’ll make money on a share at any given point in time. Although several things can help you assess a stock, no one can predict precisely how a stock will perform in the future.

If a company goes bankrupt, there is no guarantee that you’ll get your initial investment back. If you’re a common stockholder, you may be among the last to get paid back, if at all. This is why you invest in low-risk well-established companies that ensure financial security.

Stocks can be very volatile, especially during periods of economic instability. During the lowest part of the great recession, the market was down 40%. To put that into perspective, if you had 200,000 invested in the S&P 500, your portfolio would now be worth about 120k.

Where can I buy stocks?

Buying and selling stocks in today’s world is much easier than it was 20 years ago. As long as you are 18 years old, you can open an investment account with just about any bank or stockbroker. If you are under 18, you could have your parent or guardian set you up with a custodial account.

When selecting an investment account, go with the account that will help you best meet your goal. For example, if you’re looking to invest for the long haul, and are comfortable with investing for when you are older in life, retirement accounts like 401Ks or IRAs may be a great fit. In my opinion, Robinhood is the best broker for beginners; it is straightforward and user-friendly.

Where to start?

As a human, you should always be putting the time to achieve financial freedom. The best thing you can do is read a book, listen to a podcast, find a mentor, or subscribe to an excellent blog like ours to grow your investing mindset. There are plenty of people on social media, sharing FREE knowledge and experiences of investing in stocks.

My overall favorite Instagram pages that give info about stocks and finance are as follows:

  1. Robinhoodgrowth
  2. Sjosephburns
  3. shadow_investing
  4. youngprofessionalinvestor
  5. Stocksharks

My favorite books for beginners to investing are as follows:

  1. The intelligent investor
  2. rich dad poor dad
  3. The little book of common sense investing
  4. How to make money in stocks
  5. Stocks for the Long run

Conclusion

While many people have there own opinions on the stock market, My opinion is the market is the most significant way to build wealth and achieve financial freedom if you are playing it correctly. Too many people want to play in getting rich quick schemes when investing in the long term is the best way to build personal wealth and achieve financial freedom. The stock market can provide you with the ability to grow your net worth by an incredible margin over the long run. As long as capitalism continues to provide an incentive for competition, companies will continue to stretch to add as much value as much to their shareholders as possible.

On your journey as a young investor, never stop learning to stop growing your mind because one day, it will all be worth it. Investing in your self and into your future is a great way to build financial wealth and achieve our overall goal of financial freedom. You don’t have to be a genius to be successful; you just have to be committed to learning and a distinct goal you want to accomplish.

Investing in the stock market is a way to grow your money while you’re busy with working and living through daily life. Many say “the stock market is too risky to invest in” that statement is true if you’re not smart with your money. Investing in index funds and holding those funds for a long time is the safest and best way to grow your retirement funds. On AVERAGE, a recession lasts about 11 months, while the average bull market lasts 4.5 years. So people who think it is too risky to invest in the stock market are delusional. Investing in low-risk stocks with dividend yields is the most efficient way to grow your money. The great Warren Buffet defines investing as “the process of laying out money now to receive money in the future.” It is never too early start investing even at $100 early. You can invest in a small index fund.

Understanding the basics of how the stock market works can immediately change the direction and plans for your financial future. If you learn it correctly and don’t let your emotions get to you, the market can serve as a vehicle for increasing your net worth and reaching your financial goals for retirement.

While learning the stock market is an extreme learning curve, in the end, it will be a stepping stone to achieve financial freedom. Spending time and energy in learning the stock market will have a tremendous economic benefit towards your financial wealth.

The purpose of this blog and article is to inform Generation-z on the importance of investing in your future, the benefits, and the risks of the stock market I hope you enjoy!!

 



Categories: Financial Information

1 reply

  1. Hey, thanks for the mention. Great post for those looking to get their journey started!

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