When you’re new to investing, one of the places you’ll look for opportunities is the stock market. But the stock market can be full of high-risk ventures. If you want to reap the rewards, you’ll need to learn how to minimize your risk while picking ventures that are likely to grow significantly.
Stocks have the highest potential for loss, but they also have the highest potential for growth. Most investors have portfolios that include some stocks alongside more stable investments.
Stocks are assets that you buy to own part of a company. If you own stock, you can receive a portion of the assets and earnings of the company. As the company becomes more successful and wealthy, the stock price goes up.
The New York Stock Exchange and the NASDAQ are the two most common places to look for public stocks. With that said, stocks must be traded through investment firms or brokers.
Stocks that increase in value are said to have “capital appreciation.” On top of capital appreciation, certain stock investments entitle you to part of the company’s profits. These stocks are called dividend stocks, and they distribute payments to the stockholders.
Many investors gravitate toward dividend stocks because they pay even if the price declines. You don’t have to wait for the price to skyrocket before you can see a payday.
Some of the advantages of stock investments are:
- They require less money up-front than real estate and other expensive investments.
- Owning one share of stock means that you’re a business owner.
- Stocks can grow more significantly than other assets.
- Stocks help you grow your assets to save up for things like your retirement or your child’s college fund.
- Since 1926, the average stock investment has returned around 10 percent every year.
The disadvantage to stock investments, of course, is that the venture is risky. Prices can drop significantly, and stocks tend to be hit the hardest if the economy crashes. There are many factors that cause investors to sell or buy their shares. You have to learn to read different forecasts if you want to make decisions ahead of the game.
There is no way to eliminate the risk of a loss entirely, but you can use a long-term investment strategy to minimize risk.