The Basics of Stocks Explained in a Non-Scary Way

Many people would like to start investing their money, but simply don’t know how. College is a great time to start thinking about more “grown-up” ways to save money. Because of inflation, if your money isn’t actively increasing you are generally losing money. This is because the value of the dollar you have today will generally be less in the future than it is now. Investment is a great way to combat, and even surpass this deficit because stock markets usually increase. The earlier you start investing the better off you will be later. Even investing a small amount of money now can pay off, literally, in the long run. This article is intended as a starting point on the basics of what investment is and considerations before you invest. 

Firstly, there are many types of investments. I am going to focus on stocks today, but if you would like to get fancy with it feel free to look into options and forex. A stock is a share of ownership in a company. Worldwide there are many markets to trade stocks in. Here in the US, the major markets are the New York Stock Exchange (NYSE) and Nasdaq.

 

Before you invest any money into the stock market you need to decide how much risk you are willing to take on. Although stock markets generally trend upward, not every stock will be profitable. Most brokerages (a firm that facilitates the buying and selling of investments) will ask how much risk you are willing to take on and advise you based on this. The more volatile (amount of fluctuation) the stock is then the higher the risk it will be. However, remember that although higher risk means higher possible profits it also means higher possible losses. Your risk tolerance will change as you age and many other factors in your life. Since I’m young, I take on more risk than I would if I was planning for retirement in the near future.

 

There are many brokerages that you can use to trade stocks. Most have a brokerage fee which is a fee charged to complete transactions, like buying and selling stocks, for you. I personally use Robinhood because they do not charge a brokerage fee, and I tend to trade pretty frequently. This leads us to the amount of time you plan on investing for. The lowest risk option is long-term trading, where you invest in stocks then only sell after years. These traders will only return to their stocks after years (10 is common) because over this amount of time stocks will usually be worth more despite inevitable setbacks. I would recommend long-term investments for most people, because it requires the least amount of time every day, and is the least risky. I personally swing-trade where I keep positions (read: stocks) for a few days or less. I have to put more time and energy into picking and trading stocks than the long-term trader and it is definitely higher risk. I diversify my portfolio (buy lots of different types of stocks, not just one or two) to help manage this risk. The most short-term traders are day traders who will buy and sell a stock within one day. The market is open 9:30 am to 4:00 pm Eastern time each day, so this gives you a small window to make money on stocks while day trading. It is very hard to make a profit day trading without making a serious time commitment, and still hard even when you do devote your time to it. There are also increased regulations on day traders depending on how you do it.

I personally would recommend looking into investments in ETFs (Exchange-Traded Funds) for all types of investors, because they are lower risk than stocks in a single company. When you invest in an ETF, you are essentially pooling your money with other investors (through a company) to buy lots of different assets. Since these assets are so diversified, even if some assets lose money, other assets will make money. It’s pretty much impossible for a good ETF to lose lots of money long-term, which means that you will likely make money. ETFs tend to follow the overall trend of the stock market. There are many types of ETFs depending on your interests.

You may have heard people saying things like “bull market” or “bear market.” Both of these terms refer to general market trends and outlook. A bull market is an optimistic outlook that expects the market to increase. A bear market is a pessimistic outlook that expects the market to decrease.

Now you’re ready to at least understand some conversations on the stock market. If you’d like to learn more, I would recommend checking out Investopedia’s resources. If you would like to get some experience with the stock market before using your own money, then try a stock simulator (like the one on Investopedia). Overall, just reading this article shows you’re on the right track with your money. Just remember to do your research and buy low, sell high! 

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