Investing 101: It's not too late
Updated: Dec 21, 2018
Cryptocurrency, stocks, bonds, credit default swaps, Forex, The Fed, interest rates, panic sell, panic buy, Warren Buffet, recession. When it comes to investing terms, it can all be very confusing. It’s like all the rich people speak some hidden ancient language that the rest of us don’t understand. Maybe you try to watch some of the talking heads on the television to get a better understanding, but now you’re even more confused. You know that you need to start investing, but you have no idea where to start.
Don’t worry, you’re not alone. *According to the Chicago Tribune, only 54% of Americans are invested in the stock market. In other words, there are millions of adults out there, just like you, who also aren’t sure where to start. So we at J. Alfa Mais decided to create a quick introductory guide to Stock Investing 101.
What is Stock?
Corporations all around the world are split into small units called stock. These “stocks” represent a tiny piece of ownership in that corporation. So rather than an investor owning a physical piece of a corporation, they can invest in a “stock “or a “share” of the corporation. Each piece of stock you own will have its own unique set of privileges. Some stocks pay you money for every year you hold it while others will offer you voting rights during business strategy meetings.
Stock is an excellent way for an investor to passively “own” parts of corporations and gain the benefits of ownership without having to actively be involved with the corporation itself. Apple is an excellent example of this. You don’t have to be software engineer to receive a huge bonus from IPhone sales. You just have to own stock in Apple.
Where do I go to buy stocks online?
In order to buy stock, you must either purchase it directly through a company or through a specialized stock broker. A stock broker is a person or company that has the ability to complete buy orders for stocks on your behalf. The main advantage of using a broker is time. Purchases can happen so much faster with a broker than contacting a company directly. Examples of some easy to use stock brokers are: TD Ameritrade, E*Trade, and Merill Lynch.
There are two ways to contact a broker: either in person at an office or going to the broker’s website. In some instances, physical broker offices may require you to open an online account before they are even willing to meet with you. There really is no reason not to open an online broker account. It’s often free to do, and the benefits far outweigh the any difficulty from signing up for an account.
To set up an account you will need an email address, your banking information, and your contact information including address and telephone number. Often times a text message will need to be sent to a cell phone in order to prove your identity. Once your account is set up, it’s time to start your next step: education.
Buying and Selling
Once you are set up with an online account, it’s time to start buying and/or trading. There are only a few basic strategies to employ here.
Buy Low/Sell High: This strategy involves researching a company and keeping track of its long terms goals. The goal here is to buy a stock when its price is very low and selling the stock once the company has achieved his growth goal. Being an early buyer of Amazon would be an example of this strategy. There was a time when Amazon’s stock sold for only $1 a share. As of the writing of this article, their stock is worth roughly $1678. If you bought 50 shares of Amazon stock when it was $1 and sold it today, you would have made a profit of $83,850.
Day Trading: This high risk type of investing involves buying a stock and selling it as soon as the price fluctuates to a desirable degree. These minor price fluctuations can net major rewards if you traded at exactly the right time on a consistent basis. However, this strategy requires a large amount of time to dedicate to following the stock market. You will find yourself writing out large spreadsheets with hours of research on them in order to discover what price patterns you expect to see.
Mutual Funds: Mutual funds are a type of investment you can buy that contains stocks from several different companies, all rolled into one fund. The benefit here is that you can invest in a broad group of companies and limit your risk to changes in the market. While mutual funds tend to have lower profit margins than the other two above, the low risk component to these funds make they very attractive. Many investors use mutual funds as vehicles for their retirement.
Investing in the stock market is an excellent wealth building resource that every American has access to. It would be foolish not to start an online trading account and learn how to buy and trade stock. Personally I would recommend TD Ameritrade as an online broker. They are easy to use, offer 24 hour support, and have published many beginner friendly resources.