What Does Stock Investing Even Mean?

So, who is this "stock" you speak of? Excellent question. To start with the basics, investing in stocks means becoming a part-owner of a company, but without all the board meetings and corporate jargon. Basically, you buy a small slice of the business and that slice grows as the business does (or doesn’t). If things are going really well, the business might even give you regular payouts, just for holding some of their stock. Think of it like being a silent partner in your favorite local restaurant (maybe not Olive Garden, but you get the idea) and reaping the rewards when the place gets packed. As the unlimited breadsticks flow, so too can the benefits of owning that stock, all without any pasta-slinging efforts on your part. 

Source: Robinhood 

Why Should You Be Investing in Stocks?

As mentioned above, investing in stocks can bring a few different benefits. The biggest of these is bread (we’re speaking metaphorically now). 

Source: IKJ Financial

Growth Potential

We're all in pursuit of that elusive dream of turning pennies into piles of gold, right? Stocks offer one of the most exciting paths to potential wealth accumulation. As companies grow and prosper, so can your investments. It's like planting seeds in a garden and watching them bloom into beautiful, money-bearing trees. The stock you bought for $50 in 2020 might be worth $100 in 2025, which is $50 more than what the same money would be worth if you’d left it under your mattress. When inflation is especially hungry, finding stocks that can grow your money over time is key to boosting your net worth long-term. 

The Sweet Extra: Dividends

But wait, there's more! Some stocks don't just sit idly in your portfolio; they pay you for the honor of ownership. These payments, known as dividends, are like little thank-you notes from the companies you've invested in. It's passive income at its finest—money flowing into your account without you having to lift a finger. While dividends can provide a nice bit of fun money (again, the unlimited breadsticks are always an option), they can also be easily reinvested in additional stocks, boosting your passive earning potential for the future. 

What Are the Risks of Investing in the Stock Market?

As with all good things in life, investing in stocks isn’t all fun and games. But these downsides shouldn’t deter you from throwing your cash in the ring. 

Source: Investopedia

The Thrill and the Agony

Now, let's talk about the elephant in the room: risk. Investing in stocks isn't for the faint of heart. Prices can swing like a pendulum, fortunes can change overnight, and sometimes, you might find yourself riding a financial rollercoaster you didn’t realize you lined up for. But hey, where's the fun in life without a little risk?

When investing in stocks, these risks fall into two basic categories: market risk and specific risk. Market risk is the risk that the overall market will decline, leading to a decrease in the value of your investments. Market risk is unavoidable and affects all investors, regardless of their investment strategy. Sorry folks, if you want the ticket to ride the highs of the stock market, this is the price you pay. 

Mix It Up: Diversification

With specific risk, that is to say the risk associated with a particular company or sector, there are ways of safeguarding your investments. 

Now, here's a pro tip: don't put all your eggs in one basket. Diversifying your investment portfolio is like having a backup plan for your backup plan. By spreading your investments across different stocks, industries, and sectors, you not only reduce specific risk but also increase your chances of hitting it big. It's like playing the field in the dating world—you never know which awkward first date at that one dive bar with the vintage vending machines will turn into a long-term love affair.

How Risk Can Be Beneficial

Here’s the thing though, risk isn’t necessarily a bad thing. Generally speaking, the higher the risk, the higher the reward (see the above chart for proof). Speculative, risky stocks are priced to account for this, which means the payoff when things go well can be huge. But even if you’re not dabbling in anything too dangerous, simply taking advantage of market downturns to buy stocks at a discount can result in substantial gains when the market eventually rebounds.

How Should You Think Strategically About Stock Investing?

So, you're ready to dip your toes into the stock market waters? Maybe even put on your aqua socks and wade in up to your knees? Here are some beginner-friendly tips to get you started:

Start Small: Think of it as a practice round in the game of investing. Start with an amount you're comfortable with, and gradually increase your investments as you gain confidence.

Spread the Love: Never get too attached to any one stock. As much as you might believe in a particular company, diversification is your best friend in the world of investing. Spread your investments across different stocks, industries, and sectors to minimize risk.

Play the Long Game: Investing isn't a sprint; it's a marathon. Resist the urge to panic-sell at the first sign of trouble. Keep your eyes on the prize and stay focused on your long-term financial goals.

Source: Pinterest

How to Actually Invest in Stocks

If you’ve made it to this point in the blog, it’s safe to say you’re ready to move past the hypotheticals and actually start putting your money to work. To do so, there are a few boxes you’ll need to tick. 

Source: Library of Congress

The Marketplace: Stocks are bought and sold on stock exchanges, which act as marketplaces for trading securities. But fear not, you won’t have to step foot on the trading floor like all those really stressful old newsreels. Thanks to the wonders of modern technology, you can buy and sell stocks from the comfort of your own home through online brokerage accounts. If you’ve got a checking or savings account at a major bank, chances are you’ll be able to open a self-directed investing account there to start your stock investing journey. 

The Big Three: While we don’t have enough room and you don’t have enough remaining attention span (statistically speaking) to get into it here, there are three basic routes most people take when investing in stocks. These are self-directed accounts, robo-platforms, and financial advisors. Depending on the control, customisation, and cost levels you’re looking for, one of these may be a better fit than the others. Before you start putting your money in the market, it’s worth pausing to be sure you’re choosing the right method for you to do so. 

Choosing Your Players: When it comes to picking stocks, there's no one-size-fits-all approach. Some investors prefer value stocks that are undervalued by the market, while others favor growth stocks with high potential for future earnings. Do your research, trust your instincts, and remember that even the best investors have their off days.

Conclusion

Now that you’ve got a grip on the basics, it’s time to put your money where your mouth is. As intimidating as it can be to first invest in the stock market, starting small, going slow, and casting a wide net will help mitigate some of that anxiety. Remember: some risk is required and ups and downs are a normal part of investing. Even the experts have trouble timing the market, but the sooner you start, the more your investment will benefit from time in the market, which means more growth and dividends on your end. Before you know it, you’ll be enjoying a slice of that sweet, sweet company pie, wondering how you ever went without.