You have built significant savings thanks to your gig work, and now you’re ready to start investing in the stock market. You feel it is the right and responsible thing to do to ensure a better future for yourself and your family. The only problem is that you have no idea where to begin. We understand your confusion and are here to help.
First Things First: What is a Stock?
A stock is a financial investment you make in a company. Stockholders, also known as shareholders, become part owners of a business when they purchase its stocks. Selling stock to the public is a popular way for corporations to raise money. Most businesses offer both common stock and preferred stock.
When you purchase common stock, you receive a percentage of the company’s gains or losses based on your original investment. Preferred stock means that you receive a specific dividend payment regardless of the performance of the stock market. The majority of people buy common stock, especially those new to investing in the stock market.
Determine Your Investment Goals and Risk Tolerance
Deciding to invest in the stock market isn’t as simple as opening a savings account. You should take some time to consider what you want to accomplish by purchasing stock. For example, do you want to retire early and travel the world? Fund your child’s college education? While the goals will be different for everyone, reflecting on your own goals upfront will help you make the best decisions when it comes to stock market purchases.
You also need to understand your own comfort level with risk. Stockbrokers typically have new clients complete a risk assessment before investing any money in the stock market. You can opt for anything from the most conservative allocation of your funds to aggressive investing. If you choose the latter, you should understand that you could lose or gain a substantial amount of money in a short time depending on the performance of your stocks.
How to Choose the Best Stocks for Your Portfolio
Some stockbrokers offer clients the option to have the company allocate stocks for them based on their age, financial goals, and answers to the risk assessment questionnaire. If you prefer to choose your own stocks, a good place to begin your research is with the Standards & Poors Index, commonly referred to as the S&P. The S&P provides historical stock market performance information on thousands of stocks along with background information about each company.
When you feel ready to buy your first stocks, you can either work through a broker or use an online application to establish your account. Having an experienced professional there to guide you can be a good choice when you’re new to the stock market. Lastly, your stock market contributions may be tax deductible if you set them up as a retirement savings account.
About the Author: Lisa Kroulik has worked as a freelance content marketing writer for 10 years. She loves the work and the lifestyle it affords. Learn more about Lisa’s work and availability through Writer Access.