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Why Invest In Stocks?
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Why Invest In Stocks?

If you wish to meet your financial goals and protect yourself from unforeseen expenses that arise, investing is your answer. Investing is putting your saved income into use, wherein it generates further income. Hence, you should classify your investments based on time- short, medium, or long.

If you wish to, then invest early, regularly, and for a longer period to make the most out of it.

What should I invest in?

Investment options can be categorized into two.

Physical Assets

Real estate, gold, jewellery, commodities, etc., can be accessed in numerous ways, including traditional physical holdings, futures contracts, D-mat forms, ETFs, etc.

Financial Assets

Bank deposits, post office savings, debentures, currencies, mutual funds, insurance, PPF, EPF, equity, derivative, bonds, etc. can be held with financial institutions like banks, insurance companies, and post-offices or can be given to market exposure when talking of investing in equity, commodity, derivatives, currency, and bond markets.

Investors are free to find a product that matches their needs.

Physical holding

They are illiquid and get you a good price in a downtrend.

Futures contracts

Futures contracts offer leverage and many benefits that physical holdings offer. Moreover, this holding has numerous advantages, including liquidity and the ease of entering and exiting the market.

Option Contracts

Options are preferable and relatively less risky when it comes to accessing the market, but it is more complex and requires more study to understand volatility and various strike moves. Options offer leverage benefits like futures contracts do enable users to define their risks better.

Exchange-Traded Funds

ETFs are quite similar to stocks which you can access by equity trading account. An ETF is a paper transaction that you cannot convert into a physical one.

Why choose a stock broker?

To get successful returns and gain access to stock trading for beginners, you will need support to manage investments. And here is where the role of a stock broking firm comes into being. Investors can benefit from the services of a stock broking firm.

A stockbroker aims to provide expert advice on how to invest, grow, manage and maintain your investments based on the professional research reports.

Stockbroking firms also offer you record keeping. These firms maintain records of trade confirmations, statements, year-end tax reporting statements, withdrawals, deposits, and other such activities.

A reputed broking house means you get access to personalized and professional services. And you also get other investment opportunities apart from equities like mutual funds, bonds, options, etc.

What are the stock market and bond market?

Stock trading for beginners can get overwhelming, and they might not know how to get started. Moreover, there is a possibility that they can get confused about what to choose, the bond market or the stock market.

The bond market is where you can trade debt securities, generally bonds, issued by corporations or governments. The bond market is also referred to as the debt market or the credit market. It contains three main groups,

  • Issuers
  • Underwriters
  • Participants

The stock market is where you can trade securities like equities, derivatives, options, and futures. These are traded on stock exchanges. Buying equity shares is buying an ownership stake in a company.

How is the stock market different from the bond market?

The risk

The stock market comes with risks like country or geopolitical risk, currency risk, liquidity risk, and interest rate risks; these affect a company’s debt, the cash, and its bottom line. But when talking of bonds, it is affected by risks like inflation and interest rates.

Voting rights

The shareholders have the power to vote on certain company issues like the director’s election, while bondholders have no such voting rights.

Repayment priority

When a business is liquidated, the shareholders have the last claim on any cash that is left behind, while the bondholders have significantly higher priority depending on the terms of the bonds. And hence, stocks are riskier than bonds.

Periodic payments

Companies can reward their shareholders with dividends, while bondholders are given periodic interest payments for a specific amount by obligation. Various agreements of bonds allow issuers to delay or even cancel interest payments, but the feature is not used widely.

How to invest in the stock market with little money?

People often do not start investing because they think entering the stock market needs a lot of money. But it is not entirely true. You can get started with little money as well. But the key here is investing a small amount regularly in the share market every month. Regular investing will strengthen your financial position in the future, and it is a key to creating wealth.

You can start stock trading with a small amount with online and app-based platforms, which have made investing simpler. You can follow the below-given steps to stock trading for beginners to know how you can go about it with little money:

  • Decide how you want to start investing in stocks.
  • Set your investment goals.
  • Open an investing account.
  • Set up a budget for your stock investment.
  • Learn the basics of the stock market.
  • Get started with investing.

Here are a few tips to make a considerable difference investing in stock trading for beginners with little money.

Set long-term goals

You will need a set goal and the likely time that you will require your funds in the future. Going long results in good returns.

Compensate for the misses

You need the commitment to invest regularly. Be regular and consistent. Also, when you save a regular sum, it proves to be profitable. If you cannot save in the stipulated time this week, make up for it in the next week.

Know your risk tolerance

Your risk tolerance depends on your perception of the risk; you can avoid those investments which you know will make you anxious.

Work on your emotions

Being emotional is understandable when you are first starting out since earning good returns is overwhelming, while losing can hurt terribly. So, you need to make sure that you are not emotionally biased when making an investment.

Know your basics

Take out time and get familiar with the basics of the stock market and the individual securities of the market. Since knowledge and risk tolerance are intertwined, the risk is amplified if you are not sure what you are doing.

Diversify your investments

Diversifying your stock portfolio protects your money from unfavorable market conditions as when it comes to investing, investors must invest money in various assets, as advised by savvy money managers. So if a market swoon is to occur, you do not lose all your assets.

Be practical

Know that investing will not give you quick returns; you need to be patient and start your investment.

The bottom line

Stock trading for beginners is a way to build wealth for the consistent savers. All you have to do is make the necessary investment in time, increase your knowledge, and enjoy the power compounding offers. Start young to achieve greater final results.

 

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