Regarding stocks and shares, many terms that need to be clarified are thrown around. But don't worry; we're here to help explain things. In its most basic form, investing in stocks and shares simply means buying a stake in a company that will be traded on the stock market. And there are a few different ways you can go about doing this. Find more Stocks here.
The first way is by buying shares directly from the company itself. This method is called direct participation and is usually only available to institutional investors or high-net-worth individuals. The second way is through what's known as an initial public offering, or IPO. IPOs are when a company goes public for the first time, offering a set number of shares to the general public at a fixed price.
The third way is by purchasing shares from another investor on the stock market. And this is probably the most common way people invest in stocks and shares. You're taking over their company position when you buy shares from another investor. Learn to invest in high-quality stocks to reduce the odds of taking a loss
Now that we've got the basics let's talk about why investing in stocks and shares is such a smart move.
Why Investing in Stocks & Shares is Smart:
- 1) It's easy to gain exposure to a wide range of companies: When you invest in stocks and shares, you're not just limited to investing in one company. You can have exposure to hundreds or even thousands of different companies worldwide simply by investing in a stock market index fund. This diversification helps reduce your risk because if one company hits hard times, your investment isn't completely wiped out
- 2) There's the potential for high returns: Stocks and shares have outperformed other investments like bonds and cash over long periods. In fact, since 1802, UK shares have returned an average of 10% per year after inflation! Granted, there will be years when investing in stocks and shares could improve. But if you're patient and invest long-term, there's a good chance your investment will grow significantly.
- 3) It's relatively low maintenance: Once you've invested your money in stocks and shares, you don't need to do much else besides monitor how your investment is performing from time to time. Of course, you can stay as active or passive as you want with your investment. But compared to other assets like property or commodities (think gold), stocks and shares don't require much hands-on work once you've made your initial investment.
- 4) It offers liquidity: One of the great things about investing in stocks and shares is that it's relatively easy to get your money out if you need it. For example, if you invest in a stock market index fund and want to cash out your investment five years later, you only need to sell your units on the stock market at the current price (hopefully at a profit!). Depending on market conditions, some other investments, like property, can take months or even years to sell.
- 5) You don't need a lot of money to get started: These days, it's easier than ever to start investing with very little money, thanks to online brokers and fractional share trading apps like Stockpile. So if you've been wanting to invest but thought you needed more money, think again! All you need is enough money to buy at least one share of stock. And depending on how much each share costs, that could be as little as $5! Granted, you'll need more money if you want more diversification. But with fractional share trading, even $100 can expose you to a portfolio of different companies.
Conclusion:
All things considered, investing in stocks & shares are worth considering if you're looking for somewhere to park your spare cash. Not only does it offer potentially high returns, but it's also relatively low maintenance compared to other types of investments. Plus, with fractional share trading, anyone can start Investing regardless of how much money they have!
