The world of investing is quite a dynamic one. It is made up of various asset classes. There are hard assets like: Gold, Silver, Platinum, and other metals. Then there are paper assets or financial assets such as: Stocks (or shares), Bonds, Exchange Traded Funds (ETFs), and many more in-between. You can figure out how to learn about the stock market and investing on your own. Read investing books and articles like these. To learn about investing in stocks requires an eager mind. Have a general desire to grow your money. This introduction to stock market for beginners will give you the basics you’ve been searching for. Learn that there are also two (2) main parties to the trading and exchange of financial assets. They are the buyer and seller. Both of them seek profit. One is bullish (optimistic), and the other is bearish (pessimistic). We will concern ourselves with the asset class “stocks” that are listed and traded on the stock market and their acquisitions by beginners like you.
SAGE KEY TAKEAWAYS:
- Intro to Stock Market: Primary Vs Secondary
- Share Acquisitions for Beginners
- Portfolio Management Basics
- Beginner Exit Strategy
1. The Stock Market: Primary Vs Secondary Markets
A Basic Overview
The Stock Market is the institution that facilitates the trading, exchange, and settlements of financial assets such as Stocks – in an organized environment. The institution works alongside state regulators – primarily, the Securities & Exchange Commission (SEC). This is the standard case of all stock markets across the world. The Stock Market has licensed dealing members. The mediators of the buy and sell transactions are called stock brokers (or brokers for short). A number of them have web portals the will show you how to learn about the stock market and investing. These middlemen (and women) are responsible for pairing the buy and sell transactions on the trading floor (terminal) during the market’s open times.
The Primary Market
The primary reason for the existence of the stock market in your country is to allow businesses to raise capital through an initial public offering (IPO). This allows the business to acquire funding for growth. Participants such as Institutions and persons will receive common stock. This gives them both voting privileges (with a few rare exceptions) as well as dividend payments in the course of time. This is just a brief introduction to stock market for beginners who want a primer on primary markets.
The Secondary Market
The stock market’s secondary assignment is to facilitate the trading of stocks and bonds between buyers and sellers. These trades are made through brokerage companies. The brokers earn a commission for each transaction. Due to competitions, costs and fees have been lowered to small dollar amounts. Other countries outside the US have brokers that charge a percentage of the entire trade. This could be in the range of 2% or more. Keep this in mind as you discover how to learn about the stock market and investing in general.
A Basic Overview
In order to buy a stock you must have a brokerage account with a stock broker. This licensed dealing member of the stock market will offer you a number of services via its digital and online platforms. You will get a transaction interface that will enable you to select the security of your choice. You can choose the purchase or sale price. Other options exist on the trading platform that will give you more flexible transaction experience.
Other Jurisdictions
Stock brokers exist outside the US who are still dealing with clients/investors via old fashioned paper form filling and face to face service at local firms. Execution of trades via phone is also in use today. Your trades should take seconds to fulfill in an automated environment with excellent liquidity. But elsewhere, you could be waiting for days – or sometimes weeks to hear from your broker. Sounds unusual? The use of tech and AI is the game changer in capital markets across the globe today. Read also about how to learn about the stock market and investing in foreign markets. Sage Tip: How to Invest in Foreign Stock Market Securities from Anywhere
The Trading Process
You can acquire as many stocks as your capital would allow. You could also own fractional shares of a business that has a large share price tag (blue-chip stock). This will allow your limited capital to go a long way. As an introduction to stock market for beginners, the new investor can make money in a number of ways. Firstly, through dividend payments from the profits of the business. Secondly, through the appreciation of stock price (in a long position) called Capital Gains. On the other hand, an investor could also make money if the stock price depreciates in value – if he/she took a short position. This is known as shorting a stock.
3. Portfolio Management 101
A Basic Overview
With this intro on how to learn about the stock market and investing, we’ll cover diversification. Stocks are classified as equity investments and they carry some amount of risk. Compared to other types of investments, the potential reward compensates for this reality. One of the intelligent ways of managing this risk is through diversification. This is done by spreading your money across a handful of stocks (or different assets) that may or not be related in capitalization (size) or industry. Meaning professional money mangers have strategic diversification in place. New investors need not worry – just keep a sizable number of good assets together.
Diversification
You can have different asset classes such as Money Market instruments. Some of these include, cash equivalents, Exchange Traded Funds (ETFs), Bonds, and Stock Options. This allocation can be setup to correlate with your investment objectives. You can eventually perform portfolio re-balancing every now and then (every other year or so) to keep the original fractions of allocations for each asset class unchanged. As an introduction to stock market for beginners, I’d suggest you stick to one class of asset – such as stocks. As your financial literacy increases, you may expand your appetite for other assets.
4. Exit Strategy for Beginners Who Want to Sell
A Basic Overview
Investing in stocks should be a lifelong undertaking for the beginner investor. But due to its risky nature, portfolios could go lean on the stocks front and weighty on the less risky assets like Treasury Bills (T-Bills), Certificate of Deposits (CDs), and other Money Market investments. This is a defensive approach. While beginning the process of how to learn about the stock market and investing, consider your exit strategy.
Risk & Reward
If your investment objective was to hit a financial freedom number of about $1.2M at a certain age – say 30 or 50; then you could start selling some stocks. Move your funds to less risky and more predictable investments that would allow you to exercise the 4% rule. Discovering how to learn about the stock market and investing includes knowing about inherent risks. Another exit strategy move could be to sell to acquire better equity opportunities that appear more promising than the current. But due diligence must be taken to be sure of this conclusion. Hold the stocks for as long as you can. Any other selling motive apart from the above could be speculative.
Profit Taking & Retiring Early
Profit taking will allow you to harvest 4% annually from your investments. This is for a long-term financial freedom plan to pay for your living expenses (if you have such a plan in place). Again several adjustments for inflation and lifestyle shift and dependents must be factored. You should examine your personal circumstances before making stock sales. You could also have an airtight exit strategy for early retirement. Beginners can choose to take short-term profits to make gains. On the other hand, you could leave your capital gains untouched for onward compounding.
A Few Parting Words on How to Learn about the Stock Market and Investing
Here’s how to learn about the stock market and investing for the long-term. You’ve just read an introduction to stock market for beginners. The basic framework of how the stock market works. This simple intro will guide you with the knowledge to take the plunge. You are the one in control. Quoting the words of Warren Buffett, “Don’t let the stock market instruct you, rather let him serve you”. Move slowing as you begin your investment journey – yet act decisively and make your acquisitions. Try out a stock simulator that will allow you to make virtual trades with real-time data without any financial commitment. Get your hands dirty until the bucks start rolling in. Happy investing! Please comment below if you’re new to the process. Could you share an important tip with new investors and readers of this article?
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