Investing in the stock market can be very interesting for an individual considering the future gains. However, it is not a decision to be taken lightly because there are risks to be taken. To make sure you make the right choice, you should know the basic rules of investing in the stock market.
Investing in the stock market: what is it?
On the financial markets, you can buy or sell securities. This is called investing in the stock market. This type of investment makes it possible to:
- Receive income: when an individual buys shares in a company, then he receives dividends which are part of the company's profits. He also sometimes obtains bond coupons (loans granted by investors) which are a representation of an interest payment;
- Benefit from capital gains: with the evolution of the price of the security on the market, an investor can make a profit if he manages to sell a security at a much higher price than when he acquired it.
Investing in the stock market: the basic rules
For a beginner in the financial market, it is more than necessary to get acquainted with the basic rules of stock market investment:
- Invest with a part (not too much) of your savings: an individual must avoid investing on the stock market if the savings he is going to use for his daily life projects. That is to say, use only a part of the savings, which, in case of loss, will not impact his standard of living ;
- Find out before you invest: an individual can't go for it with his eyes closed. It is in his or her interest to understand the concept of such an investment before doing anything. First of all, he must know everything about financial products: the type of product (bonds, shares, derivatives), the risks associated with it and the mechanisms. It is also important to find out about the issuer. For more security, it is recommended to seek advice from a professional in the field to find out not only about the issuer's objectives but also about its situation. In order not to miss anything, it is recommended to follow economic and stock market information by accessing stock market websites or via the financial press;
- Definition of investment strategy: according to his profile, the investor must have a very precise objective of gain. He also needs a maximum loss floor;
- Portfolio diversification: the aim here is to ensure that the capital invested is correctly distributed. Therefore, if ever there is a drop in a single stock, it will not have a serious impact on the entire portfolio. It is fundamental to know how to distinguish between the different investments;
- Having good control of your portfolio: Vigilance is an investor's first partner. He must keep a close watch on his portfolio because markets are rarely stable;
- To know when to stop by taking profits and withdrawing if ever one reaches the threshold of admissible losses.
Investing in the stock market: risks and precautions
Any type of investment is subject to risk, and investing in the stock market is no exception. The ideal weapon for dealing with these risks is the mastery of information on financial products. It should be noted that: the higher the potential of an investment, the greater the risks involved.