Money Girl explains the best ways to buy stock and gives a smart investing strategy to make them really pay off. Page 1 of 2 A Money Girl podcast listener named Iulia asks: What should I know as a beginning investor? How to Make Money Investing in Stocks One of the best ways to invest money is to purchase assets that either create income, increase in value, or do both.
Some assets may only appreciate in price, such as an art collection or precious metals. And some assets may only give you income, such as a bond that pays a fixed amount of interest.
Investments that offer the potential for both income and price appreciation include: But first, why do companies issue stock in the first place? Maybe a company needs to fund groundbreaking research, open a division in a foreign country, or hire a crew of talented engineers. Stocks are intangible assets that give you ownership in a company. As I mentioned, stocks can increase in value, which is called capital appreciation. You can easily find current stock price quotes on sites like Google Finance and Yahoo Finance.
In addition to capital appreciation, some stocks also allow you to be paid a portion of company profits. That's called a dividend stock and it distributes dividend payments to stockholders. Dividend stocks pay you even when the share price goes down, so owning them is a smart way to hedge against potential market losses. You can find a list of dividend stocks on a site like Morningstar. Pros and Cons of Investing in Stock There are many advantages to investing in stocks.
Buying just one share makes you an instant business owner without having to invest your life savings or take on all the risk. The biggest advantage of stocks is that they offer the greatest potential for growth. Over the long term, no other type of common investment performs better than stocks. The major disadvantage to investing in stocks is that prices can be volatile and spike up or plummet quickly as trading volume fluctuates.
News, earnings forecasts, and quarterly financial statements are just a few triggers that cause investors to buy or sell shares, and that activity influences a stock's price. Price volatility is why stocks are one of the riskiest investments to own in the short term.
Investing at the wrong time could wipe out your portfolio or cause you to lose money if you need to sell on a day when the price is below what you originally paid for the shares.
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