How does stock investing work

Learn how to invest in the stock market, understand its operation, tools, and platforms to start, and get step-by-step instructions with the best tips to make your savings profitable.how does stock investing work

In this article, you will find: how does stock investing work

What is investing in the stock market?

Investing in the stock market means that the investor seeks to obtain future economic returns through securities. To invest, it is important to learn how to do so in the stock market, since doing so implies not only having money but also having the knowledge to do it correctly.

The stock market is an organization that allows the negotiation of the purchase and sale of securities that can be different types of investments, such as company shares, public or private bonds, among others.

If you have cash left over and you think you won’t need it in the near future, investing in the stock market can be an excellent opportunity to increase your wealth.

Investing in the stock market is good. 

You will notice that there is a high opportunity to obtain high returns. You should keep in mind that you could also see a sharp decline in the value of your investment.

Let’s start with an illustrative example based on real data to understand if it is profitable to invest in the stock market.

Let’s take a person who bought Apple stock a few years ago. In July 2016, a stake in Apple Inc. was available for less than $100.

Today, the stock is trading for more than $200. If that person were you, you would have doubled your money in four years.

Now, think about another person who bought shares in Macy’s Inc., a department store, in July 2016. Here’s what happened to the investment:

The value of the original sum has been declining for four years. While Apple’s stock value rose as the company increased sales of its smartphones and diversified into services like Apple Music,

Macy’s, on the other hand, lost as people switched from shopping in brick-and-mortar stores to shopping online.

Do you want to invest? Start your own business, apply for a loan, and achieve your goals.

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Is it good to invest in the stock market? How much could you earn by investing?

Let’s understand how much money it is possible to earn if you invest in the stock market.

To do this, we can examine the performance of the Dow Jones. It is a stock index that indicates the current market value of the shares of 30 of the largest publicly traded US companies.

For example, here is a graph illustrating the rise of the index over the last 10 years to help you understand why you should invest in the stock market: how does stock investing work

Dow Jones 10-year historical chart

You can see that there has been a constant upward trend in stock prices over the last decade. But there are also many ups and downs.

For example, if you invest say $10,000 in the stock market and within a few months the value falls to half that amount, how will you feel? Can you face it?

You will probably wish you had deposited the money in the bank or invested it in your business instead of in the stock market.

Advantages and disadvantages of investing in the stock market

If you are wondering if it is worth investing in the stock market and if you should invest in it, here is a list of advantages and disadvantages to help you answer that question:

Advantages of investing in the stock market

• Potential for high long-term returns: Over the past 25 years, the Dow Jones Industrial Average has provided an annualized return of nearly 8%.
• The S&P 500, an index that tracks the share prices of 500 large US companies, has provided a slightly better return.
• Dividend Income: When you invest in the stock market, you can benefit in two ways. The first, of course, is that the value of your investment can increase. In addition, you would be entitled to receive dividends from the company in which you have purchased shares.
• It is possible to earn a return of between 2% and 6% each year from dividend payments alone.
• However, you should remember that there is no guarantee that a company that has a history of paying dividends will continue to make payments.
• It’s easy to invest and you can make money on the stock market; you just have to open an account with a broker, fund the account, and place your order.

Disadvantages of investing in the stock market

• There is a high degree of risk; the stock market is volatile. You can buy when the stock is at its peak and watch helplessly as your investments lose value.
• It is not a good idea to bet on the stock market when you may need the funds for some other purpose; this is a mistake many people make.
• It is important to create an emergency fund before thinking about investing in the stock market.
• You may suddenly need money to take advantage of an opportunity for your business.
• Or, you may be faced with a situation where a customer who owes you a large sum does not pay you.
• There may be a medical emergency in the family.
• Unforeseeable situations are innumerable. How are you going to cover these expenses? If your funds are locked up on the stock exchange, you may have to sell your shares at a loss to access them.
• Choosing the right stock can be difficult; professional stock market investors spend a great deal of time and effort identifying good investment opportunities.
• As a small business owner, you probably don’t have the skills or resources to pick stocks that have the potential to increase in value. how does stock investing work