Buying stocks for the first time? How to navigate the market for first-time investors.
One way companies can raise money to fund their business is to sell stock to the public.
When people buy stock in a company, they're betting that investment will grow over time, along with the company in which they're investing.
As of May 2022, Gallup reports 58% of Americans own stock. One reason for this is the stock market’s increased visibility and accessibility, thanks to a number of trading apps like Robinhood, Acorns and more which have driven the cost of trading to zero and claim to make trading easier for the average investor.
If you’re a first-time investor or someone who’s just curious about the market, we’ve got the basic information you need.
How to buy stocks
If you’re saving for your retirement, it might be a good idea to open an Individual Retirement Arrangement (IRA), a type of account that gives you certain tax benefits while limiting the types of actions you can take and the amount you can invest each year.
According to the Charles Schwab Corporation, an important step to trading stock to which you want short-term access is opening a brokerage account. Taxable brokerage accounts can give you more flexibility and access to your assets without time constraints, with the downside being that any capital gains resulting from these transactions are subject to taxation in that tax year.
Once you’ve opened an account, you should do careful research before deciding which stocks you would like to purchase. There’s no one right way to invest, so based on your individual financial goals and the types of companies you’d like to support, your stock portfolio may look very different from others’.
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What is a stock?
The words, “stock,” “shares” and “equity” all mean the same thing. They refer to a shareholder’s claim in a company’s assets.
In other words, owning stock is owning a small piece of a company. You even get voting rights for certain company actions that may need shareholder approval.
How do stocks work?
Companies sell stock when they need access to more capital. Then, as there is more demand for certain stocks, often because of a company’s success, the stock's price can increase, making your original investment worth more.
There are many ways skilled stock traders can determine precisely when to buy or sell shares to their benefit. In simple terms, you can generally expect your stocks to rise in value when the companies you invest in are doing well and to lose value when those companies are doing poorly.
Stock traders buy stocks with the intention of making a profit by selling them when they are worth more than their initial purchase price.
How to check stock prices
According to Forbes, one of the easiest ways to follow the general pulse of the market is to check popular market indices like the Dow Jones Industrial Average and the S&P 500. These market indices, which track the performance of selected groups of stocks, provide a window into the overall health of the stock market.
To check the prices of specific publicly traded stocks, the New York Stock Exchange (NYSE) and Nasdaq stock exchanges have search functions on their websites. Each publicly traded company is assigned a unique ticker, or some combination of letters or numbers, to identify its stock. You can enter the ticker or usually find the company's ticker using the search function.
Sites like MarketWatch also report on many popular indices and individual stocks in the United States, Asia and Europe, as well as cryptocurrencies.
How does inflation affect stocks?
Most equity sectors are typically hurt by inflation, but there are a few sectors that can beat these negative conditions, according to Vinovest, a site dedicated to wine investing.
In times of rising inflation, you should avoid investing in discretionary spending —things consumers don't need to purchase, such as expensive vehicles and other unnecessary luxuries, according to Vinovest.
You should also invest in the industrial and material sectors when inflation is high due to supply constraints and rising labor costs, says Vinovest.
There are, though, sectors that can grow even in inflationary periods. According to Vinovest, these are the safest investments to make when inflation is on the rise:
- Wine
- Real estate
- Energy
- Bonds
- Financial companies
- Commodities such as gold, agricultural products, oil and gas, soybeans and more
- Healthcare
- Consumer staples like food, hygiene products and other household items
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