By: Hong-An Phan
Broken down into baby terms for even dummies.
The Internet is raging, the news outlets are vying, and everyone and their mother seems to be trying to hop onto the rising fame of stockbuying. But what are stocks? Are they truly a gamble, or are they a surefire way to gain money?
First, it is important to recognize that buying stocks is a financial decision that should not be taken lightly. When considering purchasing shares of a particular company or institution, it is every individual’s responsibility to research their reputation, growth, and overall history thoroughly.
Now for the basic economic term. According to Charles Schwab, a reputable investment group, a stock is defined as “a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. When the value of the business rises or falls, so does the value of the stock.”
When somebody purchases a share- whether it be worth a dollar or a hundred, they own a literal part of an institution. Therefore, when this company experiences growth, the value of the stock will also rise. However, when a company does not perform to standard, the value of the stock will decrease.
The most simple way to invest is to remember the phrase “Buy low, sell high.” When purchasing a stock, the only way to make profit is to make sure that the stock is sold for an amount that is higher than the price it was purchased for.
This means that reading markets, researching companies, and watching economic growth are vital to trading. Without being in the know of current news, opportunities to buy or sell can be easily missed.
To purchase stocks, one would open a brokerage account. There are several different types including the ROTH IRA, 401K, or traditional account. Some accounts have different rules when it comes to withdrawals and taxes, so it is advised to research what type of account aligns best with investment goals.
Finally, please note that investing is not gambling. This is a common misconception that turns away millions of potential traders from earning additional income. Gambling is defined as “the betting or staking of something of value, with consciousness of risk and hope of gain, on the outcome of a game, a contest, or an uncertain event whose result may be determined by chance or accident or have an unexpected result by reason of the bettor’s miscalculation” according to Briticanna.
On the other hand, most events that occur in the stock market are not by chance. Many experienced traders can predict events that may occur after hours of research and studying. Although some unexpected things may happen, it is not entirely true to call investment a gamble. Rather, it is an opportunity with a level of risk that can be different depending on your personal finance goals.
Photo by NBC News, Tech Daily, Unsplash.
Comments