Learning How to Invest
The stock market can seem like a very tense environment, especially for a novice, when learning how to invest. With a background of dramatic rollercoaster ups and downs, it is only natural that newcomers are intimidated. After watching people lose money on what seemed like safe investments at the time, it is natural to be leery and to equate investing in stock with gambling. It might also seem to those who know they need to invest for their long term financial health that now is too complicated a time a time to try the field. The truth is, of course, that this is a good time to invest if the novice is willing to learn how to invest by starting with the basics.
The basics of learning how to invest
There are a few terms that are important for the novice to understand before even making the first investment. The first such term to understand is the purchase itself. A “share” is exactly what it sounds like. It is a share of the profits, assets, and losses of a company. When a company reaches the point of needing to expand and grow rather than getting a loan from a bank, it can start selling pieces of itself to the public in exchange for cash. When anyone buys a share, this makes them the owner of a piece of the company’s future.
“Earnings per Share” refers to the amount of profit to which a share is permitted. In other words, when a share is purchased there is a set amount of what it can earn. It can earn less than that if the company does poorly, but it cannot earn any more.
When a company says it is “going public” this is a term for making pieces of it available to buy as shares.
Another very important term to understand is the Ticker Symbol. This can be the most intimidating factor to investing, since these stickers can resemble another language to the new investor. The symbol is actually a few letters standing in as a code for a company’s name. For example, AT&T Wireless would be AWE.
The real purpose behind learning how to invest – When an investor does research a company and decides to invest they are not really gambling. They are putting money they currently have into the future of a company, in order to build the future for both, themselves and that company. The company will use the money from the stock sale to expand and grow. The investor will see the results of that expansion in the return on their investment.
Only invest what you can afford when learning how to invest – Investing in stocks should only be a part of a financial portfolio. A novice must learn to understand how much money returned on a share can be, but not to expect that return as “a done deal”. The events of the last stock market plunge does not mean there is no future in investing, but it does bring home the important point -to only invest income which the investor does not need, to see an immediate return.