Like in any project you may embrace in life, you should always have a good “know how” about it.
Investing in the stock market it is not diferent, you should never put your money in something that you do not understand.
About the stock market:
Companies can finance their activities by asking loans, issuing bonds and equity.
Equity is part of the companies ownership. If you buy stocks of a certain company, you become her owner (in the same relative amount).
A publicly trade company goes to the market and sells part of her equity in order to finance her activity.
Therefore, when you are buying stocks you are making an investment in the long run (I am excluding traders), and you should expected return in the same time frame.
And when I mention expected return, I must also mention risk. Both are connected and for more return in your portfolio you should always expect more risk in it.
And, because it is an investment for a long period of time, you should select your stock (company) wisely.
You should look for a company with a good perspective of growth, analize the risk, and for that you must understand the financial ratios. Then you should buy it below it’s fair value price (often investors use market corrections to do so).
Risk is present in everything you do in life, including the stock market investments.
If you are buying a stock from a company that goes bankrupt, you can lose all the money invested. However, if you have done your research properly and DIVERSIFIED, you can reduce the risk of your portfolio and obtain a good return.
“Never put all your eggs in the same basket”, always diversify. Diversify by sectors, industry and geografic regions.
One final thing about investing in the stock market: make a plan, your plan.
Set your target (you can be investing for retirement, for your kids education, and so on…)
Set your investment estrategy.
Execute your plan and adjuste it when necessary.
And never let emotion interfere. News are full of traps.
Keep calm and invest.
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