Happy stock Investing. We are all about Wealth booking. Therefore, in this article, I will discuss a way to build wealth if you know where to start. Groundfloor Investing offers short-term, high-yield real estate debt investments to the general public. Every investor should have the freedom to invest on their own terms.
Stock Investing Why invest in Stock Market One of the best tools to grow wealth: –
The market has averaged a 10% annual ROI historically Savers are losers (Due to Inflation) – Assets > Cash – You are losing purchasing power by not investing Never been cheaper to invest – $0 Trades/Fees are the norm now – Low Expense Ratios for solid investments (Vanguard, etc.) You don’t have to be a genius – There are strategies that help you grow your wealth over time Stock Investing
READ ASLO:- How to generate wealth in stock market
What is a stock?
|Stock Investing – Share Price = $216.02 |
Market Capitalization = Shares Outstanding x Share Price – 7,560,000,000 x $216.02 = $1.633T ($1,633,111,200,000)
Their Market Cap typically measures companies – Market Cap changes over time because share prices and shares outstanding can change over time – Shares Outstanding = 7,560,000,000 (7.56B)
Example: Microsoft (MSFT) – Buying shares gives you “equity” aka ownership in shares of a company – Think of each share being a slice of a pizza Stocks are ownership shares in a company.
Stock investing is driven by the buying and selling of a company’s stock
1. Investing in Stocks
Corporations issue stocks to raise capital for their businesses – You typically buy common stocks when you buy stocks (Get free stocks)
2. Fund a new product line
Last to receive a dividend – Research & Development – Last to receive a payout in case of liquidation
3. Invest in growth
Common Stocks = Voting Rights – Pay off debt – Preferred Stocks = No Voting Rights – Preferred Stock & Common Stock
Why Do Companies Issue Stocks?
Companies can issue stock to raise capital for expanding operations or launching new projects. In addition, the issuance of stock in public markets allows early investors in the company to profit from their positions in the company.
How are Stocks categorized?
Stock are categorized are three types Stock Investing: Large Cap, Mid Cap, and Small-Cap Stocks
1. Market Cap
Shares Outstanding x Share Price
2. Large Cap ($2B-$10B Market Cap)
Not quite large-cap and has a more established track record than
3. small cap
Often the target of M&A (Mergers and Acquisitions) – Big potential for growth / outpacing the market ($AMZN, $FB, $MSFT) – Small Cap ($300M-$2B Market Cap) – Growth Stocks – Typically younger and are seeking aggressive growth Other Category of Stocks: – Higher risk & Don’t usually offer dividends – Typically hard to achieve massive growth due to size – Proven track record over many years, frequently offer dividends – Mid Cap ($2B-$10B Market Cap) Stock Investing
Stock Investing – Income Stocks
Typically low or no dividends (reinvesting retained earnings) – Regular Dividend payment ($MMM, $WM, $VZ) – Value Stocks – Perceived to be trading below its fundamentals (P/E Ratio, P/B Ratio) There are 8 broad sectors: – Proven track record/biz model, a consistent increase in dividends
|1. Energy (Oil, gas, coal, fuel, etc.)|
|2. Financials (banks)|
|3. Materials (chemical, metals, paper)|
|4. Healthcare (pharma, healthcare equip)|
|5. Industrials (Defence, Aerospace, manufacturing)|
|6. Consumer Staples (food, beverages, etc.)|
|7. Consumer Discretionary (apparel, household products, etc.) – Typically seen as unfavorable in the marketplace Stock Sectors – An area of the economy in which businesses share a product/service Stock Investing Stock Investing|
|8. Information Technology (internet, software, semiconductor) 9. Telecommunication Services (AT&T, Verizon, etc.) The risk with Stock Investments:|
What is a risk with stock trading?
Many types of risk in stock trading are:-
|1. Inflation Risk –||Loss of purchasing power (i.e. 3% < 5%)|
|2. Horizon Risk –||Your investment time frame changes|
|3. Foreign Investment Risk –||Applies to foreign investments|
|4. Utilities (electric, gas, water companies)||Types of Risks you need to understand|
|5. Credit Risk||An entity can’t repay (i.e., bonds)|
|6. Real Estate||(REITs, apartments, malls, office space)|
|7. Market Risk||Economic developments/other events|
|8. Concentration Risk||Too many eggs in 1 basket|
|9. Liquidity Risk – can’t sell your investment||The chance that your actual outcome will differ from your expected outcome – Risk includes the chance of losing some or all of your investment – As investors, we are compensated for the level of risk we assume.|
Investing Vs. Saving in bank Stock Investing
What is saving?
Savings is the act of putting money aside in a bank account for a future expense. You can access the saved money relatively quickly when you need it for purchases or emergencies, and it is very liquid and low-risk.
What is investing?
The process of investing is buying assets whose value increases over time. Risks are exchanged for higher returns. Volatility and illiquidity are common characteristics of investments. Capital gains are earned by selling your assets for a profit or realizing your capital gains.
How are saving and investing similar?
- Savings and investing share many similarities, as both help you accumulate wealth.
- The money will be used in the future. Savings and investments both carry a monetary value.
- Instruments of finance. Money is accumulated in specialized accounts with a financial institution in both cases.
- In both cases, your financial goals must be analyzed as part of financial planning.
In what ways are there differences between Savings and Investment?
Savings differ from investments because they are usually deposited into a bank savings account or a fixed deposit. By contrast, they are investing in the process of buying assets such as real estate, gold, stocks, or mutual funds that are expected to increase in value over time.
The following are some of the differences between savings and investment:
- Objective: Savings and investing have different objectives. Typically, savings are short-term and used for emergencies and purchases and can be done with little research. Investments are made in order to achieve bigger goals such as building wealth, funding education, or purchasing a house. Market research and long-term commitment are often required.
- Protection against inflation: Savings accounts lose value as inflation rises, but investing is an excellent way to combat inflation.
- Returns: Savings usually earn a fixed and steady rate of interest. On the other hand, investing has the potential to produce much higher returns.
- Risk: Savings typically have a very low or negligible risk. Savings instruments such as FDs, RDs, and savings bank accounts will always give you steady interest rates. Nevertheless, investments are risky as their value fluctuates according to the market conditions and other economic and financial factors.
- Liquidity: Savings instruments are typically high liquidity instruments. Therefore, they provide you with access to money whenever and wherever you need it. On the other hand, investments usually offer low liquidity, and hence financial experts recommend not investing your emergency funds.
Basis of Comparison
|Basis of Comparison||Savings||Investment|
|Objective||Smaller and short-term goals||Bigger and long-term goals|
|Returns||Low returns||High returns|
|Risk||very low or negligible risk||High or medium risk|
|Protection against inflation||Offers little protection||Offers high protection|
|Typical products||Cash, bank saving account, FDs, RDs||Real estate, bonds, stocks, equity, and mutual funds|
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How do you make money from stocks?
There are three ways to make money in the stock market: Sell stock shares at a profit-that is, for a price higher than you paid for them. This is the classic “buy low, sell high” strategy.
What is the best way to invest free in stocks?
TD Ameritrade is excellent for allowing you to build a great portfolio at a low cost. Stocks, ETFs, and options are available commission-free through TD Ameritrade. Additionally, they have a wide range of no-load and commission-free mutual funds. In addition, TD Ameritrade consistently offers some of the best sign-up bonuses.
What is the best way for beginners to buy stocks?
Here are five steps you can take to buy your first stock:
1. Choose an online stockbroker. You can buy stocks the easiest way through an online broker.
2. Research the stocks you wish to buy.
3. Purchase your shares.
4. Select the type of stock order you wish to place.
5. Manage your stock portfolio.