4 Things You Need to Know If You Want to Invest in Stocks

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Stocks remain a popular investment option because they are great if you wish to invest long-term. They give you small ownership in a company, and you can make money by buying low and selling high. You can also make money by shorting stocks of different companies, although doing so is only recommended for expert investors and stock traders. If you are a beginner, though, here are a few things you need to know before investing in stocks.

There are Different Types of Stocks

When you start looking at stocks, you might be surprised to learn there are different types or categories of stocks you can invest in. The most common options are:

  • Common stocks – The most popular option, these stocks give you an ownership stake in a business depending on how many shares you own.
  • Preferred stocks – These return a dividend, and you get a payment before common stockholders.
  • Dividend stocks – These pay a dividend regularly, and you can get back your money plus all the profit from the stock’s appreciation once you sell it.
  • Growth stocks – Stocks belonging to companies that are growing very fast.
  • Blue-chip stocks – Stocks belonging to large, well-known, stable companies with a long history.

Other types of stocks include small -, mid-, and large-cap stocks, value stocks, and foreign stocks.

You Need a Broker

While some companies allow investors to buy shares directly, you will need the help of a broker to invest in stocks in almost all cases. A broker gives you access to stock exchanges, navigating them on your behalf so you do not have to deal with the complexities of trading stocks.

Reputable brokers also research stock options and advise you on the best ones to invest in. They do this to ensure you make as much money as possible so that you continue investing in them.

However, you should know brokers charge a commission fee depending on your arrangement when signing up with them.

You Can Speculate Instead of Buying

Options trading lets you speculate on the price of a stock without buying it. You get into an agreement with a buyer or seller and agree to sell or buy a stock at a given date at a predetermined price. You can post a call option where you initiate a trade to buy a position, or a put option where you have an option you would like to sell.

If the stock’s price rises above the price that you paid for the option in a call option, you make a profit on the difference. In a put option, you profit from the difference between the premium an investor paid on the option and the lower price you sell it for if the stock’s price falls below what you paid for it.

Options contracts are generally stable investments that can make you a lot of money if you know how to leverage put and call options. You can also time the market so you know when to buy and sell, and profit from finding people willing to buy your options or sell theirs at the right time and at the right price.

There are Numerous Diversification Options

Stocks give you many diversification options. For example, you can buy different types of stocks in different businesses and sectors. However, you can also diversify through mutual funds and exchange-traded funds. These included numerous stocks from one or multiple industries and securities. By giving you a larger exposure to the stock market, exchange-traded and mutual funds minimize investment risks, help you hedge against inflation, and increase your returns.

Stocks are an excellent investment option regardless of where you are in your investing journey. You need to understand what they are and how they work before investing in them. You also need to know the different ways of investing and diversifying your stock investments to get the most out of them.

Just A Guy Thing is a men's lifestyle magazine focused primarily at guys wanting to better themselves.

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