We get lots of questions about the basics of investing here at MyWallst, so here’s a guide on the stock market for beginners.
At MyWall, we want to debunk the myth that investing is only for the rich and powerful. We particularly want to encourage young people to start investing early because you really have the most to gain!
As a new investor, you’ll discover that the key to long-term investing success starts with learning how to manage potential risk. This can seem particularly difficult in times of volatility, such as the crash and rebound the stock market endured this year due to coronavirus. MyWallSt can help you with these big questions, and for all of those in-between questions along the way, we’ve answered below.
The stock market for beginners
- What is a stock?
A stock is a stake in a living, breathing business in which you share the rewards and the risks alike. Companies issue stocks to the public to raise capital, shares are then traded as the value rises and falls on various exchanges around the world. Stocks are the backbone of a good investment portfolio and have proven to outperform every other form of investment in the long run.
- What is a ticker symbol?
A ticker, or stock symbol, is a unique 3, 4, or 5 letter abbreviation assigned to every public company for identification purposes. They are like nicknames, some are exactly the same as the brand name – like IBM (IBM) while others are an abbreviation like Microsoft (MSFT).
- How do I make money from owning stocks?
You can profit from owning stocks in two different ways:
- The company decides to return money to the shareholders by paying dividends. This is cash that is paid on a regular basis to shareholders.
- The business you invested in grows and the price per share increases. So, if you buy a stock for $10 and the share price increases to $30, you will have earned $20 in the stocks appreciation if you decide to sell it.
- Why do stock prices fluctuate?
The stock market is a bit like an auction. The price of a stock will fall if there are more sellers than buyers and vice versa. A company’s performance won’t always directly affect the price of a stock, but investors’ reaction to the performance of that company will. When a company is performing well, more people will want to buy its shares which will send the price up.
- What is market capitalization?
A stock’s market capitalization is the sum of the total shares outstanding multiplied by its share price. So, if a company had 2 million shares priced at $50 each, its market capitalization would be $100 million.
- Do I need a broker to start investing?
Yes. A stockbroker is a licensed professional who can buy and sell shares on your behalf in exchange for a fee.
In the past, stockbrokers charged high fees and required minimum deposits. These days, the internet has given birth to discount brokers that compete on pricing and usually have no minimum deposit restrictions. Discount brokers do come with a downside though, they do not provide any investing advice. That’s where MyWallSt comes in. We want to help educate and guide users throughout their investing life, giving them the tools to invest with confidence.
- What should I buy as my first stock?
This is an area new investors can get stuck. The important thing to remember is that your first stock does not have to be perfect as investing is a life-long pursuit. You can invest a very small amount and see how it plays out before making another investment. Buying shares in companies that you already use is a smart decision as every time you buy something from one of them you are helping that company grow, and in turn the shares in your portfolio.
Are you an Apple fan? Apple earns about $258 in revenue from every user per year, and to buy a share in the company only costs around $115. If you truly believe your favorite company will still be around in 30 years, why not invest in them?
- What do I do after I buy a stock?
Once you’ve purchased a stock you’re officially an investor, welcome to the club! You can monitor how your investment is performing in the MyWallSt app if you have a linked DriveWealth account, once you buy a stock it will automatically be added to your portfolio in the app. Don’t worry about checking the stock price every day though, it’s more important to keep an eye on how the business itself is performing. Our analysts will keep you updated with content every day on everything you need to know, from earnings, mergers and acquisitions, to company’s new products.
After you have purchased your first stock, it’s time to think about diversifying and building out your portfolio to limit risk.
Want to learn more about investing? Check out our free Learn App!
We’ve built the Learn app by MyWallSt to give you all the knowledge by offering 40 bite-sized lessons that cover some of the most important ideas and concepts you need to understand before you start investing.
Get the Learn app now, it is free to download for both iOS and Android.
MyWallSt has tons of other helpful articles for beginner investors including:
- Never Borrow To Buy
- Best Investing Advice During Coronavirus Sell-Off: Don’t Panic
- 8 Best Investing Books 2020: Think Like An Investor
Read the entire ‘How To Start Investing In Your 20s’ series here:
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.