People always tell you about the stock market as though it is the magic gateway to another world. That world is full of privilege, wealth, streets made of gold, and house parties that rival Gatsby’s. Images of men walking in tailor made suits, wielding the latest technology towards their ear, and walking through a busy New York City street unaware of the people around them as they seal a last minute deal using “insider information” abound. Tickers run across financial news programs telling us about the latest trends on the market, money gurus pop up with books on how to make a million in investments, and sometimes we hear of a stock market scandal. All of these images are exciting but they can be overwhelming when initially learning about the stock market. Information can seem pretty enigmatic and simple concepts can compile and easily become overwhelming. I’ve spent the last few days attempting to define the stock market as a beginner and have found that with a little autodidactic drive its complexity easily unravels. At its root it is a simple and intelligent system to try and make your money work for you while you are doing other things. For the average American those “other things” are going to your 9 to 5 job and raising a family. For the guys in the nice suits it’s running a company from your computer while laying out on a yacht. Most people need to find a place to put their surplus money and it’s best to put it somewhere that it can possibly beat inflation which will eventually make your money less valuable. First thing one has to ask themselves is why they’re interested in investing, next they must understand the ABC’s of the stock market, and finally they have got to take the risk associated with investing and put their money on the table.
“What would you do if you had $1,000 to invest?” is a great question to ask yourself when trying to figure out where you stand with investing (Gillespie). It’s important for any newbie or even senior stock manager to understand their “why” before getting started with any investment. This will help the investor gauge their levels of risk tolerance, time investment, and investment strategy. Stocks can be pretty high risk in comparison to other investments. You stand the chance of losing everything you have. This can factor into whether the world of stocks is a good choice for you or not and many things can play a role, like age. For example, I’m just starting out in life and would like to get my feet wet plus I have time on my side. The longer the time you have to invest into stocks the longer the potential for that stock to grow. Also, if you have time on your side you can stand the risk of losing money on a stock and starting over. I have room to take risks that maybe someone who starts investing at the age of 55 might not be interested in. Also, depending on your life situation you may use different strategies with investing. You could spread your money in different companies, buy penny stocks, invest in different levels of risk companies, or put all your money in tried and true names. If I had a $1000 dollars to invest I’d buy individual shares of my favorite companies and some penny stocks I believed in. Once a determination has been made about your personal goals with money it’s best to take the next step.
That step would be to learn as much as you can about the stock market and clarifying all concepts starting with “what is a stock?” A stock is a share in the ownership of a company (“Stock Basics”). It represents how much of a company you own. If I bought stock in Starbucks we can safely assume I own .000000001% of the company. That’s a tiny molecule of every chair, latte, espresso machine, and barista uniform in every building (or even less than .000000001%). That gives me no weight for voting on the big issues but it can definitely set me up to win if the company wins financially depending on how much I’m willing to invest. On the same side of that token I also share risk in losing my investment if the company performs poorly. The goal with the stock market is to understand the companies you are investing in: Are they making smart choices? Keeping up with technology? Paying attention to what consumers want? Then confidently picking them for your investment. You can pick individual stocks, buy them in slightly lower risk mutual funds, or hire someone to make your investments for you. This is also the step where you seek mentors, read the books, study great investors, follow the market, use online simulators, and overall gather information (Reinkensmeyer).
The last step in understanding the stock market is actually opening up your wallet and investing. There are many ways you can get started but the most traditional way is visiting a company like Scottrade and setting up an account. I’d prefer to open an account with an online broker and pay the fees associated with picking my own stocks. In fact, it’s a bit of a sport for me to study a company and bet on the outcome with my money. Most major banks can also help their customers open investment accounts. The only way to really learn is to try it, figure out the nuts and bolts, and figure out how to make it work for you personally.
The ideas that Hollywood leaves us with about the stock market are often inflated by top 5% success stories and a fantasy of how it could be. The reality about the stock market is much plainer. If you’re willing to take some risks and be steadfast with your time and investment, you can possible gain a higher return on investment than any other type of financial instrument. The interest that some investors have experienced on the growth of their investments have sometimes been as high as 10-12%. They are a great way to put aside money that you will not be using and to try and make sure that the value of your money rises with inflation and perhaps make more money for other needs. Stocks exist to help people build their wealth and wealth can be a little more subtle and slow cooked than we initially imagine. Don’t just imagine a fast Ferrari, caviar, and dating a model lifestyle which is promised by television in association with stocks; imagine a paid off home, comfortable retirement, and vacations with the love of your life as an option using stocks. It’s an instrument that has potential to help you realize long term financial peace.
- Gillespie, Patrick. “Want to Start Investing? Here Are 4 Questions to Answer.” CNNMoney. Cable News Network, 10 Mar. 2016. Web. 23 Apr. 2016.
- “Stocks Basics: What Are Stocks? | Investopedia.” Investopedia. Investopedia, 03 Dec. 2003. Web. 23 Apr. 2016.
- Reinkensmeyer, Blain. “10 Great Ways To Learn Stock Trading – StockTrader.com.” StockTradercom. Reink Media Group, LLC, 29 Feb. 2012. Web. 23 Apr. 2016.
