Stock markets can be particularly confusing, even if you’ve dealt with them before.
They can be a great way to gauge industries and make some money or even save some but where do you start when you have no ideas of how the stock markets work.
What Are Stocks
A stock is basically a share in the ownership of a company which is listed on the stock exchange. These stocks represent a piece of the company’s assets and earnings and naturally, as you acquire more stock, your ownership stake in the company becomes bigger.
The Stock Market
In the UK, the main stock market is the London Stock Exchange,
The stock market is split into different indices, with the FTSE 100 being the most famed here in the UK, but this can vary around the world.
These different indices and the most popular ones come from the Footsie group which includes the FTSE 100, the FTSE 250, the FTSE Fledgling and the alternative investment market (AIM). These footsies list small and venture capital-backed companies.
Risks
The markets do come with their own risks and unlike cash, it isn’t risk-free.
The stock markets can be quite volatile which means that they can have their good days and bad; when you become familiar with how they work you will understand why stock brokers become so stressed staring at a screen with their utter glee or complete despair.
How to Invest
There are two ways to invest in the stock market.
This can either be directly or indirectly and the way in which you invest depends on your circumstances and what you want to get out of the markets.
Investing in the markets is always done through a third-party broker, although ‘directly’ is a misnomer and direct investment means buying the shares in a single company and becoming a shareholder.
Why does the stock market go up and down?
The prices of shares change constantly and there really isn’t any explanation why or warning, only in public disasters or PR cases where you can predict the plummet is share prices but this can never be 100% guaranteed.
There are a few factors which affect the value of stocks, but like I said this can vary;
- Political instability
- The weather
- Potential government investment
- Market sentiment
How Much Will You Make
How long of a piece of string? Honestly – there is no real answer because it is all dependent.
What stocks you have invested in, how much the stocks are worth, who else has invested in those stocks, how long you want to keep your investment and any changes the company makes.
If you have large shares, purchased at a small price and the company does exceptionally well growing into a worldwide business, then you’re probably going to make a lot of money – if you’ve invested a small amount in a large business that has suffered a serious PR disaster, then you shares will probably plummet and won’t be worth that much anymore.
You need to be able to put your money away for at least for 5-7 years to see a real return on your investment; according to the history books so you really need to be in it to see any positive return on your stocks.
Wondering how else you can invest your money? Take a look at our different areas of investment to see what works best for you.
