4 Stock Market Basics You Should Know Before Investing in Stocks


Research shows that around 55% of Americans have direct investments in the stock market.

If you belong to the other 45%, you might want to invest your first dollar in the stock market. That said, you may not know a lot about investing, and so you might worry about losing money.

This post will teach you four stock market basics that’ll help you become a successful investor. If you’re looking to grow your net worth, these investing tips could help you achieve significant stock market returns.

Let’s begin!

1. Is a Long-Term Approach Better?

Many investment magazines publish stories of people that have made lots of money in a short amount of time.

Following this, you might want to do the same thing when you finally dive into the stock market. However, while it can be fun to make a lot of money in a short amount of time, aiming for fast returns isn’t a good idea for newbie investors.

One reason for this is that making big returns, in a short period, often comes down to timing the market.

If you’re new to investing, there’s a good chance you don’t know how to time the market. Following this, if you try to do that, you’ll probably end up losing a lot of your investment account.

Additionally, making fast returns often means that you need to risk a large portion of your investment fund. If your ‘bet’ goes the wrong way, you will lose a significant amount of money.

Therefore, it’s better to aim for substantial returns over a significant amount of time. This approach works well for newbie investors because you benefit from the gradual growth of the stock market.

Note that if you’re going to adopt a long-term approach, it’s a good idea to automate your investment process.

You might set up your investment account so that a certain amount of money is automatically deposited each month. In doing so, you’ll be able to increase your ‘exposure’ to the stock market, which will then allow you to generate better returns over time.

2. Should You Invest in Big Companies?

If you want to generate significant returns in the stock market, you must invest in the right companies. However, how do you identify the companies that are worthy of investment?

Well, one approach is to simply invest in the biggest companies that are on the stock market. At the moment, these companies are often known as ‘FAANG’ stocks, and this includes the following companies:

  • Facebook
  • Apple
  • Amazon
  • Netflix
  • Google

Because these companies are the biggest in the world, investors will feel confident about the future of these businesses. As a result, outside of significant market turmoil, the stock prices of these companies will generally be quite stable.

Plus, a lot of people think these companies are going to have a positive future, simply because they’re so dominant.

For instance, these companies have plenty of money to invest in R&D, which means they will innovate over time. This will then allow them to better serve their customers, and this will result in the stock prices increasing over time.

Of course, nothing is certain when investing in stocks, and these companies could fail in the next ten years, due to an unforeseen problem. Still, if you want to keep risk to a minimum, investing in these kinds of companies is the best way to go.

3. Should You Invest in Small Companies?

In the section above, we mentioned that it could be a good idea to invest in large companies, as such companies will likely have a strong and stable future.

However, you can adopt another investment approach, and that is to invest in small companies that you think will have a good future.

Suppose you buy a product from a small company that’s listed on the stock market. You might like the product so much that you think the company is going to grow and have a positive future. Following this, you might decide to buy some stock in the company.

After all, you might think that it’s only a matter of time before other people realize how good the company is. Then, once these people realize how good the company is, they will buy more of its products, and this will lead to an increase in stock price.

You will then experience a significant return because you bought the stock when it was at a relatively low price.

4. Educate Yourself

If you want to be a competent investor, you need to focus on learning everything you can about investing.

One way you can do this is by simply buying books based on the topic of investing. You might also want to get a mentor that’ll teach you how the stock market works. You can find an individual like this by joining online investment clubs and then asking people to mentor you.

If you can’t find a mentor, you might just want to ask people if they can send you clips of them making trades throughout the day.

For instance, when it comes to forex trading, you’ll find that there are live forex trading room videos. These videos teach people how they can trade the forex market, and they can be an excellent resource for newbies.

If you can find something similar for the stock market, you will be able to learn a lot about investing.

That’s because you’ll see how an expert reacts to stock market volatility, and how they separate the good stocks from the bad. You can then use this knowledge to improve the quality of your investment decisions.

Will You Take Action on These Stock Market Basics?

The stock market basics mentioned in this post should help you get off to a good start when investing.

Of course, these tips will only help you if you actually stick to them. Now, that might sound easy, but many investors abandon their well-thought-out plans when a recession hits.

You must focus on managing your psychology when you’re investing in stocks. If you can do that, you should be able to grow your investment account without too much trouble.

Did you enjoy reading this blog post? Be sure to check out more of the articles.

Jeff Campbell

Jeff Campbell is a husband, father, martial artist, budget-master, Disney-addict, musician, and recovering foodie having spent over 2 decades as a leader for Whole Foods Market. Click to learn more about me

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