Investing is the act of committing money to an endeavor with the expectation of earning additional income or profit. There are a number of ways you can invest such as with stocks, bonds, mutual funds, real estate or your own business. There are many pros and cons to investing but depending on your risk tolerance one may be a better fit for you.
The stock market is the term used to talk about a place where stocks and bonds are bought and sold. When most people think of investing the first thing that often comes to mind is the stock market. In a stock market shares of public companies are issued and traded either through exchanges or over-the-counter markets.
Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called “equities.” When a company needs to raise money for business operations or growth they have two choices: 1) borrow money or 2) raise it from investors by selling them a piece of the company by issuing shares of stock. When you own a share of stock you are a part owner in the company.
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.
How to Start Investing in the Stock Market
The best way to start investing in the stock market is to understand how it works. I started with reading up on definitions to understand the terms. It gave me a better understanding of the basics. Check out www.Investor.gov or research your questions here.
I started investing in the stock market with small stock purchases using ScottTrade. I really didn’t know what I was doing so I chose stocks of companies I used. I’d research them on Yahoo. I purchased a few shares of stock and watched to see what happened. Eventually I became more comfortable with the process.Remember the stock market is risky and you can lose all the money you’ve invested. Learn as much as you can, speak with financial and investment experts and know your risk tolerance.
Investopedia has a pretty good stock stimulator. You can use fake money and make investments then see what happens.
What is a Brokerage Account?
Brokerage accounts allow you to purchase stocks, bonds, mutual funds, and other investments by paying professionals to buy or sell the items. The fee you pay them is called a commission. As an investor you own the assets contained in the brokerage account.
Brokerage accounts are offered by brokerage firms and there are several different types of firms. A brokerage firm, often times simply called brokerage, is a financial services business that buy and sell securities such as stocks and bonds to investors. They facilitate the buying and selling of financial securities between a buyer and a seller. Brokerage firms serve a clientele of investors who trade public stocks and other securities.