Investing in stocks means buying ownership shares in a publicly traded company. These small shares are called shares in the company and by investing in that stock, the hope is that the company will grow and do well over time.
When this happens, the shares may become more valuable and other investors may be willing to buy them from you at a higher price than you paid for them. This means that you can make a profit if you decide to sell them.
Investing in the stock market is a long-term game. A good rule of thumb is to have a diversified portfolio and stay invested, even if the market goes up and down.
Different ways to invest in stocks
There is more than one way to invest in stocks. You can choose any one of the following methods, or use all three at the same time. How you buy stocks depends on your investment goals and how actively you want to be involved in managing your portfolio.
1. Invest in individual stocks. If you like to research and read about markets and companies, buying individual stocks would be a good way to start investing. Even if the share prices of some companies seem high, if you are just starting out and have only a small amount of money, you may want to consider buying fractional stocks.
2. invest in stock ETFs. exchange traded funds (ETFs) buy many individual stocks to track an underlying index. When you invest in an ETF, it’s like buying stocks from a very broad range of companies that belong to the same industry or consist of a stock index, such as the S&P 500. ETF stocks are traded on an exchange like stocks, but they offer greater diversification than owning individual stocks.
3. invest in equity mutual funds. Mutual funds have some similarities to ETFs, but there are also important differences. Actively managed mutual funds have managers who pick different stocks to try to beat a benchmark index. When you buy shares in an equity mutual fund, your profits come from dividends, interest income, and capital gains. Lower-cost index funds are mutual funds that are more like ETFs.
Keep in mind that there’s no right or wrong way to invest in stocks. Finding the best combination of individual stocks, ETFs and mutual funds might take some trial and error while you’re learning to invest and building your portfolio.