4 Things that will help you Understand the Stock Market

By: Andrew McShane

Trying to understand the stock market can be confusing. Try these 4 things to make it easier on you

You are about to learn...

  • Why the Stock Market is confusing
  • What Stocks to look out for as a beginner
  • Where to start as a beginner

Understanding the stock market can be a confusing and lengthy process. The stock market a scary place to invest your hard-earned money, especially for those that are new to investing. Many financial institutions make investing in the stock market sound very complicated in order to support the huge fees they charge for their services. However, we try to make things easy for you and these 4 things will help you understand the stock market a lot quicker.

Take these Steps to Help Understand the Stock Market

There are a few simple things to know about the stock market that will make you more confident about investing some of your savings in the stock market. Understanding the stock market can go a long way to reducing your costs and improving your investment returns, in order to provide more money to support you and your family.

Understanding the stock market is the result of breaking the stock market down into simple terms and is key to being able to invest confidently. There are easy ways to understand the stock market that will allow you to better understand the investments you are making. Understanding your options in the stock market is key to better investment returns.

Here is my list of four things that every investor should know about understanding the stock market. These four easy ways to understand the stock market will go a long way to increasing your confidence about the stock investments you decide to make. Understanding the options in the stock market will make you a better investor.

  • There are many ways to invest your savings and the stock market is just one of them. And there are many ways to invest in the stock market once you decide to invest some of your savings there. Is investing in stocks right for you? Unlike a bank certificate of deposit, you can lose money on investments in the stock market. Over the long run, stocks have greatly outperformed many other investment options like bank certificates of deposit, however you will no doubt lose money on some of your stock investments. If the risk of losing part of your investment in the stock market is too concerning for you, then find a different place to invest
  • Once you decide to invest in the stock market, you will need to pick a reputable brokerage firm to buy and sell stocks for you. Historically many investors would use expensive full-service brokerages like J.D Powers or Fidelity that provide more support and guidance, but at a high cost.

But with so much more information readily available on internet sites, many people have been empowered to take more control over their investment decisions. These enlightened and empowered investors will use a low cost brokerage like Robinhood or Charles Schwab to do their trading. Choosing a stock brokerage firm that fits your personality and needs is very important.

  • Only invest money in the stock market that you do not need for at least the next six to twelve months. Warren Buffet had a great quote when asked what his preferred holding period is for the stocks he buys. And his response was “forever”. The most money is made in the stock market by buying high quality stocks and holding them for long periods of time. You can’t hold stocks for long periods of time if you have short term needs for the money.

Unless you are uniquely skilled, forget about investing in stocks via day trading, or buying penny stocks, etc. You will very likely make more money and sleep better at night investing in high quality companies whose products you use every day like Starbuck, Amazon, etc. and holding them for long periods of time.

  • Stock values will fluctuate every day, sometimes for reasons that don’t seem to make sense. Over the long run stocks are generally valued based on their generated profits and cash flows. But in the short run, stocks are valued based on the emotions of investors based on the news of the day. Don’t get caught up in the day to day fluctuation in stock prices.

In summary, if you decide to invest some of your money in the stock market do so confidently following the four rules outlined above and you will likely be rewarded with good returns on your investment over the long run.

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