Different Ways of Investing in the Stock Market
Just like anything that involves money, nothing is certain in the stock market. This is perhaps the main reason why people fear sinking their cash in the stocks. Most prefer to deposit it in the bank because of the covering insurance, assuring depositors that regardless of what happens—whether the bank closes or the economy becomes unstable, their money, or at least, a portion of it, could be recovered. The notion that buying shares are tantamount to gambling is neither entirely true nor completely false. To have a grasp of their difference, you may opt to play and paper stock trading. The two games would give you an idea of how each works without spending real cash.
After playing the games, you might realize that the major difference between the two is that gambling does not really require studying. Almost everything depends on luck, while stock trading necessitates analytical skills. However, it would help if you noted that analytical skills are not the most important things in the stock market; discipline and patience are. Discipline—because you need to commit to saving for your stocks. This would mean spending your income wisely and watching your purchasing habits. Patience—since the stock market would not make you a millionaire in a day. It entails great patience as you would have to wait for a long period of time before you harvest what you sowed.
There are three basic techniques in investing: buy and hold, cost averaging, and speculative investing.
Buy and Hold Method
The buy and hold technique refers to the act of buying shares of a trusted company on a particular date and holding said shares for decades. This could be your retirement plan. Although this technique has been proven to be effective for quite a while now, it may cause anxiety to new investors because of the waiting period. The point is you invest only your excess money as you are not supposed to sell these shares after only a few months.
Cost Averaging Method
The cost averaging method is perhaps the safest investment technique because it requires you to fund your investment—monthly, quarterly, or even annually. This means that there are seasons when you buy shares both at lower and higher rates. The difference between the average price when the stocks are bought compared against the current market values is your profit. Since there are ups and downs in the stock market when you buy your shares, the average may, most of the time, be lower than the current trades. This translates to securing profit by selling your shares after a couple of months or a year or so.
Speculative Investing Method
Speculative investing is the most popular method associated with the stock market. Simply, it is buying and selling your shares every so often, depending on the market’s movement. This is not really for beginners as this might be a bit too risky. More than this, if you plan to employ this method, you would have to monitor the market most of the day. Thorough fundamental and technical analyses are also needed. Meaning, you have to stay updated with what has been happening to the companies you invested in. You can try speculative investing if you have a lot of free time, you do stock investing on a full-time basis, and (if you have online brokers) you have a device like a laptop, a tablet, or at least a with a good operating system. A stable internet connection is also a must. In the end, you have to remember that investing, whether in stocks or any form of business, entails some risks. Take risks, only calculated risks.