It's okay if you feel a little left out, we all have to learn at some point, right? Don't be intimidated by the seemingly complicated words, stocks aren't that hard to understand. Don't believe me?
Let's start with the basics.
What is a Stock?
Investopedia says "A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation's assets and earnings." You probably saw that definition when you googled it and closed the tab.
What the definition is saying is that a stock signifies ownership of shares in a company. Investopedia says you're not a part-owner of the company but most investment books will say you're technically a part-owner.
The Point of Buying Stocks
So you're also probably wondering, why people even buy stocks. The simplest answer is that people buy shares to make money. When you buy shares you can sell them for a higher cost than what you bought it for so you can make a profit. Sometimes, the company may even share some of their profit with you based on how many shares you own. This is called dividends. If the company you buy shares in decides to pay dividend then you'll get a cheque in the mail. You can also opt to have it deposited in your stock account if you want.
Why Companies Offer Shares
Why does a company want random people like me and you to own shares? Companies offer shares in their company simply because they want money. Companies may use this money to do things like pay off debt, expand their business and fund ventures they believe will get them profit.
How to Buy Stocks
In order to buy stocks you're going to need a stock account and you can get one opened at different brokers. A broker is "a person who buys and sells goods or assets for others." You tell the broker you want to sell or buy a stock and they carry out the transaction for you. They charge a nominal fee to do so. You can trade our shares online through, if that's what you're interested in make sure that your broker offers online trading. Most of the banks double as brokers and there are a few investment companies out there that focus only on that. You can access the list of brokers here.
If you're under 18, you'll need your parents to open the account on your behalf. If you're over 18, you'll need:
- A valid ID
- Proof of address
- Source of income
- The money to open the account/buy your shares- The amount of money you need depends on the broker.
What You Need to Know Before You Invest
- Know Your Goals-Before you go and pick random stocks, it's important to know what your goals are and your risk appetite. Everybody is different and so there is no one size fits all advice for this. Talk to your financial advisor. When you go open your brokerage account, there are people who you can talk to about these things. They should be able to help you pick stocks and advise you.
- Picking Individual Stocks Isn't For Everyone- Nothing is for everybody so this wouldn't be surprising. There are also other investment vehicles out there you can research. You can even look into things like mutual funds.
- You Can Lose Money- This is why it's important to know your risk appetite and invest accordingly. People lose money from investment all the time, it shouldn't scare you though. People will generally tell you that you shouldn't put money in you're afraid to lose. In addition to that, stocks generally perform well over time so don't let the chance you might lose money stop you. The truth is, you can also gain a lot.
- Research, research, research- There are blogs, podcasts, and books on investment. You don't need to know everything before you start but know something so you can make informed decisions. You can check out some of the resources below to get you started:
People invest in an attempt to safeguard their money against inflation and make a good return on their investment. It definitely can be a powerful tool if you do your research.
PS: We're not licensed financial advisors and this isn't intended to serve as advice. Please contact a licensed financial advisor for guidance.
-- Trevann Hamilton