Investing in a stock market has always been considered as a simple way that can help you in earning some extra cash. With the right skills and right approach, investing a small amount in the stock market can make you a millionaire. Becoming rich from the stock market though is not an easy path and might take longer than expected but the possibility of growing rich becomes apparent. If you seek to invest in the stock market, below I have presented a simple guide that will help you in understanding how the stock market works and how you can identify stocks that can give you strong returns in future.
How does a stock market work?
Some of the regular participants you will find in a stock market includes banks, investors and brokers. The basic purpose behind investing in stocks is to provide corporates with the required funds so that they can expand their businesses accordingly. In return, investors get many advantages such as the opportunity to get a share of the profit earned by the corporate in the form of dividends and increased share value.
Shares and stocks do not trade on exchange only but in many other counters. Some government agencies like the Securities and Exchange Commission in the United States manage and regulate stock exchange that acts as a key marketplace where investors sell and buy stocks. For the stocks that are being traded over the counters, they can be sold or purchased in the market through market makers or dealers. Stock market indices reflect and are designed in a way that reveals overall stock performances in the marketplace. The stock performance further decides upon the chances of getting profits or losses from market participants or the investors.
What are Bears and Bulls in Stock Market?
You must have heard of the terms bulls and bears in the stock market very often. Well, Bull and Bear are the two terms that describe the general trend, attitude, action or the sentiment of either an individual or the market as a whole. The term bullish and bearish is used by investors to quickly describe the market sentiment regarding particular stock or security or financial market condition.
A bear market means that the market is seeing a decline in the prices that can end for months. It can either represent a single stock or group of securities or securities market entirely. On the other side, a market is marked bullish when the stock or security prices rises. Most of the investors get tempted to invest in the bullish market while in a bearish market, investors usually opt for short-selling so that they can earn in the bear market.
How to double your money every three years?
Many investors earning billions from the stock market suggests that money invested can be doubled every three years at a remarkable 24% CAGR. Though, investors must be aware of stock market analysis.
Analysing stock market: This is the first step you need to follow before investing. You can analyse stocks by considering debt to equity ratio, price to earnings ratio, profit margin of the firm you decide to invest upon and return on equity ratio.
Approaches behind stock market investments: For this step, you can adopt one of the several methods that can help you in selecting a perfect stock to invest in. However, the basic approach is growth investing and value investing.
How to become rich by investing in the stock market?
Follow the below tips to become rich from the stock market
- Always make a thorough research of the firms you decide to invest in. Keep a track of the firms which are listed so that your investments are risk-free.
- Setting a financial goal is very important. Decide upon what is the primary intention behind your investments based according to your savings and earnings.
- Never regret after you have invested in a certain stock. Always keep in mind that investing in lower price while selling the same at a higher price is almost impossible unless you find inside news of the company. If you have chances to earn you can incur losses also.
- To earn more and lose less, take liquid stocks since they tend to provide higher returns.
- When investing, you must make a market study carefully. Stay patient even if it takes longer to decide and stay focused on your pre-determined investment goals. Never get influenced by the market fluctuations that take place very often.
- Never make a big investment at once rather make a monthly budget plan to invest in certain stocks. By making a budget plan, you can cut off any extra expense of yours and save to increase your stock investment in future.
- Always use index funds through which your portfolio will get diversified broadly. With single stock, you can never turn rich. So, start investing with a smaller amount in various funds of different companies.
- Hold good stocks for a longer period. Purchasing and selling stocks in few months or even in a few years can prove detrimental for investors and they may not give good returns as expected.
- To reduce risk and increase returns, diversify your portfolio. While speaking of diversification, you can invest in the US stock exchange as it is becoming more promising day by day.
Some important tips for new investors
- Calculating risk is very important within an investment process. If you cannot bear risk then we would suggest that you must not invest in the stock market since the stock market is highly risky and fluctuates every time. During adverse situations, you may have to face decision risks such as inflations risk, business risk, regulatory risks, market risks and many other factors.
- Never borrow money from investors who are not reliable for stock market investment. This may push you towards the wrong side from the beginning. For example, during any market fluctuation, the investment company can pressurise you to pay back the amount borrowed and hence, can prove risky in long term.
- Always review your investment portfolio to ensure that you have more space to invest in a particular stock or not.
- While investing more, get proper knowledge about when to exit or when to sell your stock and how promising is the company.
- Do not take emotional decisions. Rather, take decisions based on data and facts. Look into the company’s financial portfolio and analyse if the company is able to give high returns or not.
- New investors must always do a diamond investment or a shadow investment so that their capabilities are enhanced and they can read the market more precisely.
- Do not fall into the trap of penny stocks. Never invest in such stock as they may look tempting due to less amount of investment but may lead you towards bankruptcy.
Final word
Investing in the stock market means that the investor seeks to increase their capital, however, there is nothing called free in this world. Therefore, to become rich by investing in the stock market, you might have to face several risks. Besides this, skills, a patient mind, clear financial goals, a focused mindset and a proper investment budget are a few essential to play risk-free. No one can be sure whether or not you can become rich from the stock market investment but the chances behind capital growth increases once you learn the basic tactics related to the stock market.
