Investment series: investing in the stock market
Contrary to what most of us might think, the answer to all of these questions is a lot simpler… To start your journey to investment success (and creating a passive income) all you really need is a little bit of money and a little bit of know-how with a stomach for risk.
While we can’t help you develop a more aggressive appetite for risk, perhaps most importantly, what we can also do is equip you with knowledge. In the second part of our investment series, that’s exactly what we plan to do too. By helping you understand the rules of the game, you should be well on your way to ceasing the day and seeing what investing in the stock market can do for you.
At this point it is vital that you take note of the fact that most investments, and particularly stock market investing is not a “get rich quick” scheme, nor is it without its risks. But, if you give it enough time and take the right risks, it truly can form the cornerstone of your investment portfolio.
So, what are stocks?
Stocks, also called shares or equity, refer to a share in ownership of an organisation. In other words, owning stock means that a person (or company) has a legitimate claim on the organisation’s assets and earnings. The more of a company’s stock you own, the bigger your ownership stake will be. The larger your ownership stake is, the bigger claim you have to the organisation’s profits.
Being one of the many owners of an organisation does not necessarily mean that you get to give strategic input into the management of the company or its resources; that is the board’s role. You do, however, get a chance to vote for the board members that you would like to represent your interests. One vote per share means the more shares you have, the greater your voting power will be.
The board of directors (and the managers of the organisation) are tasked with increasing the value of the organisation’s stock.
How do I make money from stock?
Besides selling off your stock for a higher price than what you bought it for, another way that you can make money is by accepting dividends. Consisting of a portion of an organisation’s earnings that is returned to the stock owners (as a way to pass off payment from the organisation to its stock owners), dividends offer an added incentive for people to invest in the stocks of one organisation over another. What makes dividends so desirable is that they offer consistent returns on your investment at a reasonably low risk.
While not all organisations pay out dividends, if you have invested in one that does, you will typically receive either an annual or six-monthly pay out from the organisation as a share in its profits. This means you get financial returns for having invested in the organisation, and can also capitalise on the appreciation of your stock by selling it off.
*Watch this space to learn more about different investments