A Beginner’s Guide to Investing: 3 Things to Know Before Buying Stocks

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By Jacob Maslow

Investing is among the top and most effective ways to earn income, grow your wealth, and protect your purchasing power when inflation soars high. It can help you build a nest egg that you can use for life goals like making that big purchase that you’ve always dreamt of.

Besides the potential to earn returns that help cover your current living expenses, a wise investment can provide financial security in retirement.

In this guide, we shall look at some worthwhile investment options with a larger bias on stocks, alongside 5 things you should know before taking the dip in stocks investment.

Different Types of Investments to Consider 

When getting started as an investor, there’s a wide range of options to consider placing your money in. Weighing your options carefully is part of your strategy for making smart investment decisions from the word go. Here’s a brief overview of common investment options you may want to give a try:

  1. Real Estate: This broad category includes everything from single-family homes to large commercial properties. Investing in real estate can provide a steady stream of passive income and the potential for capital appreciation.
  2. Bonds: Bonds are debt instruments issued by corporations or governments. When you purchase a bond, you are lending money to the issuer. In return, the issuer agrees to pay you interest at a fixed rate and repay the loan’s principal amount when the bond matures.
  3. Mutual Funds: A mutual fund is a type of investment that pools money from many investors and invests it in a portfolio of securities such as stocks, bonds, or short-term debt. Mutual funds are managed by professional money managers who attempt to achieve a specific investment goal for the fund.
  4. Exchange-Traded Funds (ETFs): An ETF is a type of investment fund that holds a portfolio of securities, just like a mutual fund. But unlike mutual funds, you can purchase and sell ETFs on an exchange without brokerage commissions.
  5. Stocks: Stocks represent ownership in a corporation. Investing involves buying shares from a company, where, in return, you become a partial owner of that business. As an owner, you are entitled to a share of the company’s profits (dividends). You can vote on important corporate decisions depending on the number of shares you have as well as the company’s policy of shareholding.

3 Things You Should Know Before Buying Stocks 

1. Why Should You Invest In Stocks?

There are various reasons to want to invest in stocks. For starters, stocks tend to outperform other investments over the long term and offer the potential for high returns if you put a decent amount of money into them. They are also a relatively low-risk investment and maintain liquidity.

Moreover, the stock market provides excellent diversification in terms of your portfolio, the assets you can hold, the stock options you can invest in, and how you can trade stocks to convert them into money.

2. Apps Make It Easy To Invest 

Whether you’re a day trader, position trader, or long-term investor in stocks, you’d be happy to know that investing in stocks has become pretty easy these days. As long as you have an online stock trading account, investment brokers like SoFi provide access to an app from which you can manage all your investment transactions. The sofi investment app even has the option to invest in EFTs and IPOs, trade crypto, or even start automated trading.

3. Understand Crucial These Crucial Terms 

Before you buy any stock, there are some crucial stock market terms, their meanings, and how they work. Some of these include:

  • Financial Ratios include the price-to-earnings ratio or the company’s P&L accounts. These insights help you measure risk vs. reward.
  • Value traps – Undervaluation or overvaluation of stocks due to the company’s current performance
  • Annual Reports – Reports issued annually to shareholders regarding the performance of the company that year
  • Dividends – How much you earn per share annually
  • Bear Market – Associated with falling stock prices

In addition, not all stocks are alike. The prices may also vary depending on factors such as demand, supply, marketing, PR, and much more. As much as research and staying up to date with the market is critical to any stock investor, your rationale and judgment shouldn’t be underestimated.

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