How to invest Money in a Share Market
A share market is an institution where stocks are traded in a stock exchange, in other words. The term is not much used in the United States but is common in the United Kingdom and some other countries. When you invest money in a share market, you have the opportunity for better earnings than you'll get from savings accounts or CDs. With this comes some risk since stocks are not insured as bank deposits are. You can invest money in a share market and expect to profit even if you are a novice investor, provided you learn the basics and practice risk reduction strategies like diversifying your stock portfolio.
Learn the fundamentals before you invest money in a share market. When you buy shares in a company, you become part owner. If the company performs well, you share in the profits through stock appreciation and/or dividends. However, if the company does poorly, you can lose money. Some stocks have less risk and good income from dividends (public utilities, for example), but aren't likely to grow rapidly in value. Others, like stocks in emerging high-technology industries, carry much higher risk but may reward you with very high profits. Savvy investors create diversified portfolios with stocks and other securities to reduce risk. If one investment does badly, it's likely to be balanced by others that do well.
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Determine an investment strategy. If you want to concentrate on income, you'll want to invest in stocks that are stable and provide high dividends. These stocks include not only public utilities but also companies that produce staple goods people must have and preferred stocks in well-established companies. For equity appreciation, growth-oriented stocks are preferable. Avoid the riskiest start-up companies until you have the experience to evaluate them properly. You'll also want to decide whether to invest in a mutual fund, which is a professionally managed portfolio of stocks or take the responsibility of researching and choosing individual companies to invest in.
Open a cash account with a brokerage firm. The procedure is much like opening a checking account, although you'll need an initial deposit of $1,000 in most cases. You must provide some additional information, including income, net worth, and place of employment. Beginning investors may want to pick a full-service broker who has extensive research and advising services. Discount brokers are less expensive, but they don't offer these features. They are a good way to save money if you are ready to do your own research.
Compare mutual funds before you invest if this is the strategy you choose. Brokerage firms or mutual fund companies can provide you with a copy of the fund prospectus. Use the prospectus to compare the performance histories of funds you are interested in. Check their schedule of fees and their expense ratios (this tells you how much of the fund's assets go toward management expenses). Look for recent changes in the fund's management, since this can affect a fund's future prospects.
Investigate a company carefully if you're buying individual shares of stock. Virtually all major companies make their annual reports available online on their Investor Relations web pages. Look at the company's earnings and stock performance for the past few years compared to other firms in the industry. Examine the current balance sheet to determine if the company's current condition gives you a reason to expect good performance in the future. Use financial publications like the Wall Street Journal or Kiplinger's to find independent analyses of companies you are interested in.