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Saving and investing are an essential part of financial wellbeing. Achieving your financial goals, means you can’t just rely on your savings account. Investing is a must if you want to build wealth. There are various ways to invest, but online investing is the most accessible. Online investing streamlines the process, especially if one is new to investing. However, there is always an element of risk involved with any investment. The key to mastering online investing is understanding the different factors that could affect the share price.
Buying and selling individual stocks is the basis of stock trading. Companies issue shares at a certain price when they go public. Then these shares represent a piece of the company and they can be publicly traded. Gains from owning stock can be realized in two ways.
Capital gains are realized when the price of a share increases. In this case, if you own shares, their value goes up. Then your shares can be sold for more than you bought them. This happens when something associated with a company increases its value.
The price of the companies stock, rises due positive news, which translate to higher profits. For example, Apple announces a new device, or a construction company is awarded an exclusive contract. The share price may rise.
Sometimes, something unrelated to company operations could impact its share price. A competitor going out of business, or a CEO getting replaced by a better performer.
However, sometimes prices drop for seemingly unconnected or no reasons at all. The 2008 financial crisis is a good example of how a few failures in one sector impacted the entire stock market.
The second source of gains are dividends. Which is a payment made directly to it’s shareholders. This is usually a distribution of profits. .
The risk in investing is directly related to the unpredictable events could affect the stock price. Shares bought for $1, 000 could be worth $300 in a matter of hours. The key to mitigation is to avoid investing in only one stock or one general category. For example, it is better to invest in Apple or Samsung with some of the funds, General Electric with another portion. Perhaps also in Uber or Spotify as well, and then in Bank of America. This is called diversifying and if one specific company fails, the other investments are back-ups to your investment.
When dealing with stocks, you could actively trade or passively invest. Active trading means you decide when to buy and when to sell stocks. Alternatively, you could pay a portfolio manager who, ideally would earn you a higher return.
Passive investing, uses market-weighted indexes and portfolios to invest your money. There are collections of certain stocks which are given specific names and traded like individual stocks. These are a staple of passive investments and are referred to as exchange-traded funds (EFTs).
The S&P 500 index is simply a collection of 500 of the biggest stocks on the market. All are weighted according to the value of the company. The gains (or losses) represent the average returns on the market. There are other indexes such as the NASDAQ, which excludes any financial institutions. The Dow Jones 30 large are comprised of publicly owned companies based in the United States.
Before you sign up a portfolio manager, it is important to understand that they charge fees, usually based on a percentage of your investment. There are many resources available for online investing, here our top picks for online investing sites.