• Wed. Mar 22nd, 2023

What you need to know before investing in stocks

A share is a security issued by a joint-stock company, in other words, an issuing company. All the investors who bought the shares became co-owners of the company. The action just confirms that its owner has a stake in the company, even if it is very small.

Foreign stock markets are the most stable, and the stocks traded on them are highly liquid. Western markets are vast, transparent and well regulated. A lot of ordinary people (students, housewives, teachers) invest in this tool. This heals the stock market: stocks are well traded, they can be sold quickly.

Of course, trading stocks involves risk. If assets are mismanaged or the market collapses, you can lose your money. The risk was paid for by the highest average return on shares — 11.5% over the past 90 years. After the collapse of the market in 2008, there was some distrust of stocks from a younger audience, but in general, this investment instrument is confidently leading. The media tell personal stories of people who have made a fortune buying and selling securities. Against the background of the unstable economic situation in the world, strengthening the diversification of the investment portfolio at the expense of foreign stocks is a reasonable solution.

There are the following types of shares:

  • Ordinary – give the right to vote at the shareholders’ meeting, but do not guarantee dividends.
  • Preferred – have a predetermined amount of dividends – for example, that is, a percentage of the company’s profit.
  • Preferred non-voting – have a fixed dividend, but do not allow voting.
  • Privileged with special rights –have priority when paying dividends

It is necessary to understand why people most often buy shares:

  • financial well-being
  • retirement savings
  • repayment of loans
  • tuition fees

There are no completely safe investment methods — buying shares of even the most reliable companies is always fraught with risk. Experts identify several principles that should be followed before buying any securities:

  • take into account the company’s position on the market and its prospects and do not buy shares of companies whose business you do not understand;
  • study the company’s dividend policy — this information is publicly available;
  • find out what the dividend yield of the company’s shares is;
  • study analysts’ forecasts.

You can buy shares on or off the stock exchange. Trading on the stock exchange is more transparent — quotes (prices) of stocks and other securities can be easily tracked. When you buy or sell shares directly, off the exchange, there is a risk that prices will be inflated or undervalued compared to market prices.

By buying shares, the investor takes all the risk on himself even the opinion of analysts and the recommendations of professionals do not guarantee complete protection from errors.

What are the risks?

  • Market risk – this means that securities may rise or may fall in price. It is determined only by the market laws of supply and demand
  • Liquidity risk – this means that the securities you purchase may be difficult to sell later.
  • Credit risk – is the risk that the issuing company will go bankrupt. Then your securities will sharply depreciate.

Recommendations to investors

  • Do not invest your last money in the securities market.
  • Invest in stocks, choose several companies, preferably from different industries.
  • Keep track of what is happening with the companies you have invested in, and also keep track of the price of their securities.

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