Want to invest money in the stock market? Then I will guide you on how and which plan you should buy for long term benefits. For those who are conservative in nature and are persuaded by a genuine feeling to make money, the stock market is a place to make a good investment.
However, to beginners, a stock market is just that, a stock market. Without understanding some of the basic investment strategies and terms, you will never understand what it means to invest money, make profits, and to lose a fortune out there.
Beginners Guide to Stock Market For Investment
The share market is where shares of companies are bought and sold by investors and traders. We know that companies issue stocks to get funds to expand their business, which is called the Initial Public Offering or IPO. A company’s main source of funds is through this IPO.
Once an IPO is over, the shares no longer remain in the hands of the initial buyer. These buyers might want to sell it to someone who is willing to pay and earn more money for the stock in upcoming years. So, a secondary market is needed for this transaction to take place. This secondary market is called the Stock Market or share market.
Once it enters the secondary market, no money is received from the company from subsequent sales and purchases of the stock. However, the company will declare dividends on the stocks from time to time, and those who are in possession of the stock at that time will get the dividend.
Types of Investment: The Short Term & Long Term
Most often, people invest in the stock market in two different ways. One is the Short term investment, and the other is the Long term investment. Both plans have their own set of pros and cons, so let’s see which one is better for your future.
The Short Comings of Short Term Investments
Short-term investment means that stocks are held for only a short period. Profit is made from the short term fluctuations of the stock prices. Those who invest in the short term are referred to as Traders. These traders keep a constant vigil against sudden price movements and any news that could make a huge difference in the stock price.
By investing in the Short term, the way could earn you huge profits in a limited span of time. There are traders who make a fortune overnight. Just single news or a change of guard at the company could signal a rally that could turn the trader into a rich man within a few minutes.
However, there is a downside to this. The higher we can earn, the riskier it is. Some traders turned out to be a pauper overnight. Besides, there will be news that could change the fortunes of the company for the worse. If you had bet on positive news and invested heavily in it, you will lose a big-time when the news comes out negative.
To become a successful trader, you should invest more than just money. You got to invest your time and intellect as well. If there is any chance to make money in the short term, you got to be a full-time trader. It is quite impossible for those who have other jobs and careers to sit in front of the computer and look at the price variations.
More than that, you need to do continuous research on the company, the current market situation, the news that might affect your stocks’ price, the political situation, and the interest rate. It is like keeping updated about everything under the sky.
Now how will you juggle all this with the pressure of your full-time job? It will be an exercise in stress and patience. Therefore, if you opt to trade in the stock market, the best thing is to be fully involved in what you do. In addition, pray a lot because you really need God on your side to keep that luck going in your favor every time you buy or sell your stock.
The Long Term Benefits of Long Term Investments
Long-term investments, on the other hand, hold stocks for a longer period with the belief that business improves with time, and thus the stock price moves upward. Those who invest in this method are called Investors. They are never in a hurry to make money overnight. They believe that patience is a virtue.
Moreover, there are some benefits of holding your stock for longer periods, which short term investments don’t provide.
Dividends: When companies are performing extremely well, the management decides to share the profits with the shareholders. Thus they declare dividends on the shares. Some good companies declare dividends regularly, which is a source of income for the shareholder. If you buy a stock for a long period, you will get a regular flow of income from these dividends.
Bonus Shares: Just like dividends, the company also declares a bonus share from time to time, which is another source of income. Existing shareholders are offered free stocks of the company in the form of bonus shares. Short-term investment buys and sells shares within a short period, thus usually missing out when bonuses are declared. They might have already sold the share before it was declared.
Stock Splits: Sometimes, companies increase the number of shares but keep the capitalization the same to increase liquidity. This happens when the price of shares increases manifold, and it becomes expensive for small-time traders and investors to buy it. This lowers the liquidity of the shares. Which is easy for you to buy; a share at Rs 2000 or a share at Rs.50?
By being a long-time investor, you can have your stock split when the company declares it. Though the capitalization is the same, you can profit from it over time because now you have more than one share of the company from which you are getting your income.
Decreased Capital Gains Tax: You can enjoy decreased Capital gains tax if you hold the stocks for more than three years. This helps you to save on tax and thus increasing your income.
Increased wealth if the stock does well: Mostly, stocks are on the rise in the long run because, as with every business, it takes time to build up a thriving company. The company stocks may take a beating or rise rapidly in the short term. If you can keep your cool through it, you can make a huge fortune by the wealth the stock makes for you in the end.
If you are planning to invest in the Stock Market and is not willing to part with your present career, you should stick with a long term investment strategy. That will do you immense good. It could turn out to be your retirement fund. However, make a detailed study of the company and its future prospects as a business in the long run.
The good news is that you need not spend all your waking hours trying to find out in the news or elsewhere about the day’s price movement like a short time trader.