If you have decided that you want to become rich, then you would have realized that you need to invest your money wisely to achieve your goal. The stock market is one of the best options for investors to earn good returns and become wealthy. Now that you have taken a decision to invest in the stock market, you need to know what to do next and how to do it. There are many things that you need to be aware of before you start investing in the stock market.
The following are some of the important things you need to know in order to invest in the stock market:
1) The basic concepts of stocks and stock market
Some basic concepts about the stock market need to be understood. The market is traditionally a place where goods and bought and sold. In the same way, the stock market is where securities are bought and sold. There are various types of securities, stocks being the most prominent among them. Stocks can be bought from a stock exchange. A stock exchange is where the buying and selling of stocks take place, e.g.: New York Stock Exchange, NASDAQ, Japan Stock Exchange, Shanghai Stock Exchange, London Stock Exchange, Euronext, Bombay Stock Exchange, etc. Companies are listed with a stock exchange and offer their shares or stocks through the stock exchange.
A company that needs money for its new projects or expansion can go public and invite institutional investors and the general public to invest money. This is done through the stock market. Once the company is listed on the stock market, it offers shares for sale through an initial offering. These shares can be purchased based on the price offered by the company. Once the company is listed on the stock market, its market price is determined. If it is more than the price you bought it for, you have already made a profit.
Once a company’s stock is available in the stock market, it would be bought and sold regularly. There would be those who want to sell their stock for whatever reason. You can buy the stock from them. The price you buy is what is listed in the stock market. This is determined by demand. For instance, if the company is doing very well and announces a new project or a new deal, then there would be a great demand for its shares. The price of the share would shoot up and you need to pay more to buy the stocks of that company. If you already owned the company’s stock in this situation, you can sell it and earn a good profit.
However, if the company faces bad times, like disappointing business performance, or if the industry sector in general is not doing well, the price of the stock falls. The prices of stocks rise and fall constantly that is how the market works. Traders are those who keep monitoring these prices and keep buying and selling regularly to make profits. Since you are planning to invest in the stock market, you would be buying stocks for the long term. Hence, the day to day price fluctuation is immaterial for you.
2) Which stock to buy?
If you have knowledge about the financial market and are ready to put in time and effort for research, you can do it yourself. There are two tools that an investor needs. One is fundamental analysis. This is a tool that helps you analyze a stock based on factors like the economy, industry performance, company performance, and related factors. You would be using data from sources like financial reports, newspaper reports, journal reports, etc. to make an analysis. The idea here is to try to find out the strengths and weaknesses of the company. This can help you decide if a stock is worth buying.
The other tool an investor can use is technical analysis. This involves analyzing the statistical trends of a stock based on past performance. There are various tools using which you can analyze price changes and trends. Using this, you can try to decide if the stock is on an upswing or downswing, and then decide on whether you want to buy the stock or not.
There are many agencies that do fundamental analysis and technical analysis and you can refer to their reports (by paying a fee) and then decide which stocks are worth buying. If you have the knowledge, you can do the analysis on your own. Buying stocks involves risks and hence proper analysis helps you minimize risks and allows you to pick a winner.
3) Taking help of experts
If you are not the do-it-yourself type, but still want to invest in the stock market, then don’t worry! There are investment advisors who can guide you. They are professionals who know the stock market and do their own analysis. Based on the analysis, they can tell you which stocks to invest in. You would need to pay them fees for using their services. They can even manage the entire investment for you.
You must know that there is no guarantee that the recommendation of investment advisors will always be winners. That’s the reason you need to evaluate the track record of the advisors before deciding which advisor to work with. Remember – you are investing your hard earned money, so be careful whom you entrust your money with. You can also choose a robo-advisor to invest money, where a software picks stocks for you based on your investment goals. Here again, do your own analysis before deciding which robo-advisor to choose.
4) How to buy stocks?
Now that you have decided which stock to buy, the next step is to actually buy it. So, how do you buy stocks? Where do you buy it from? The answer is that you buy stocks from an exchange. The stock exchange has intermediaries known as brokers, who are registered with the exchange. You can buy stocks from a broker. The broker would have a terminal that connects directly to the exchange. The broker can carry out real-time transactions on the exchange using the terminal.
You can open a brokerage account or trading account, where you become the broker’s customer. There would be formalities for opening the account, which would include providing your details, completing documentation formalities, and you may have to link your bank account to the brokerage account. This would ensure easy financial transactions. Once your trading account is open, you can start transacting on it.
You can place an order with the broker to buy or sell a particular stock. The order can be placed over phone or you can do it online. In the earlier days, individual investors had to place orders only by phone or in person, Today, brokers offer online options to buy and sell in the stock market. Software would be available that you can use by logging in to the broker’s website or by installing it on your computer system.
When you have the online software, you would be given credentials to login to it. You can login and the software would show you stocks and their current price. Since you are not into trading, you need not worry about price fluctuations. Just place a buy order using the option provided. The quantity of the stock would be purchased and placed in your account. In this way, you can keep buying stocks and they would be added to your portfolio.
6) Going the mutual fund route
When you want to invest in the stock market, apart from buying stocks, there is one more option you can consider that is mutual funds. A mutual fund is where investors invest their money in a fund operated by a well-known company. The fund would be operated by a fund manager, someone with experience and expertise in the financial market. The fund manager uses the funds available to buy stocks. It would be the responsibility of the fund manager to analyze the market and decide where to invest money.
Instead of stocks, investors are allotted units of the fund. The value of the units would rise proportionately to the performance of the stocks owned by the funds. A good fund manager can ensure sizeable returns for investors. This is a less risky option as compared to stocks. This is because a professional fund manager does the investment and you can benefit from it. You can buy and sell mutual funds through a broker or directly with the mutual fund company.
There are various types of mutual funds. An index fund is like a replica of the stock market index. It invests in the same shares that the market index has. So its price movements are directly related to that of the stock market. There are various other types of funds available. You need to do some research on your own to understand the risk and returns of the funds before you decide which one to invest your money in. You can also ask an investment advisor to help you with this.
7) Dividend and dividend reinvestment
In the case of both stocks and mutual funds, the investor can receive dividends. The company whose stock you buy or the mutual fund company can share their profits with investors in the form of a dividend. Regular dividends can be expected from the top performing companies/funds. This can help you earn money from the stock market. There would also be an option of dividend re-investment, where instead of taking the dividend, you can choose to reinvest in. This will allow your investment to grow, so that you have a sizeable amount after some years.
8) Charges, commission, and taxes
When you invest in the stock market, you need to keep in mind that there would be various charges that need to be paid. Whenever you buy stocks, you would pay a charge or commission to the broker who is facilitating the transaction for you. This is called a brokerage and is a small percentage of the total value of the transaction. Similarly, when you sell a stock, there would be brokerage to pay. You need to consider this amount in your calculations. If you have 100,000 in your brokerage account, you will not get it all. You will get the amount minus brokerage. So, this is something you must keep in mind.
If you work with an investment advisor, they would charge either a fixed fee or a percentage of the sale in exchange for their services. This is also something for you to keep in mind. There may also be annual account charges that your broker may charge. These are things you need to know about, so you don’t get a nasty surprise later.
Then there is the taxman who is waiting to take his cut from your earnings. Taxes vary depending on local laws. When you sell the stock or mutual fund units and take out your earnings, you would need to pay taxes on it. This may be in the form of capital gains tax or income tax. This can be a sizeable amount and can reduce your overall earnings. You need to know the current tax rates and factor it. If for instance you need 100,000 for some purpose, you need to wait for your investment value to be 100,000+charges+taxes before you withdraw it.
9) Selling stocks
You can sell the stocks you own either when you need the money or when you feel you have earned a sufficient profit. When the market reaches an all-time high, you can book profits fully or partially. Later on, when the market comes down, you can invest money again in the market. You need to have investment goals when you invest in the stock market. These goals will help you decide when to sell your stocks/mutual fund units. You can also sell if you feel that the stocks are underperforming.
Oil falls after surging past $65 on Texas freeze
By Stephanie Kelly
NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.
Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.
U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.
Brent had gained for four straight sessions before Thursday, while WTI had risen for three.
“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”
Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.
The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.
“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.
Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.
Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.
“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”
Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.
OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.
(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)
GameStop frenzy sparks fresh investment in stock-trading apps
By Jane Lanhee Lee
OAKLAND, Calif. (Reuters) – The recent trading frenzy centered on GameStop Corp and other “meme” stocks is sparking a wave of investor interest in start-ups aiming to mimic the success of Robinhood Markets Inc, whose no-fee brokerage app has helped drive a trading boom.
Public.com, a direct competitor to Robinhood that boasts a host of blue-chip backers, said on Wednesday it had raised $220 million, valuing it at $1.2 billion on the private market. Another well-heeled rival, Stash, said earlier this month it had raised $125 million, while Webull Financial LLC, backed by Chinese investors, is also raising fresh funds after enjoying an influx of new users.
Robinhood, meanwhile, raised some $3.4 billion in the midst of the GameStop furor to assure its stability amid rapid growth and demands by its trading partners that it post more collateral.
The fresh investments are coming even as government regulators ramp up scrutiny of Robinhood and others involved in the GameStop trading. A U.S. congressional committee on Thursday grilled the chief executive of Robinhood and a YouTube streamer known as “Roaring Kitty,” among others, as it probes possible improprieties, including market manipulation.
Robinhood came under stiff criticism from some quarters for restricting trading in GameStop and other shares at the height of the frenzy, a move the company says it was forced to make due to requirements of partners that settle trades. It has also drawn scrutiny for a business model that relies on payments for sending trading business to partner brokerages, a practice Public.com and some other rivals are pledging to avoid.
Investors see rich opportunity in bringing easy stock trading to smartphone users globally, though the companies say they are also cognizant of the risks.
Stash, which doubled its active accounts to over 5 million by the end of last year, operates with only four trading windows a day to discourage rapid speculative trading, it said.
U.K.-based Freetrade.io told Reuters by email that its user numbers last year grew six-fold to 300,000 and by mid-February had reached 560,000. It said it had raised a total $35 million, including from crowd-funding rounds from over 10,000 customers.
But it does not offer margin trading or riskier offerings. “These products encourage investors to behave as if they are gambling or speculating rather than investing,” a Freetrade.io spokesman said.
Interest in trading apps is soaring globally. In Mexico, trading app Flink launched seven months ago and already has a million users, according to co-founder and chief executive Sergio Jimenez. He said Mexicans can buy fractions of U.S. stock through the platform, but not Mexican stocks – yet.
“Ninety percent of them are investing for the first time,” said Jimenez.
Flink raised $12 million in a funding round in February led by Accel, an early investor in Facebook. Accel is also an investor in Public.com and Berlin-based Trade Republic Bank Gmbh, which allows European retail investors to buy fractions of U.S. stocks, according to Accel partner Andrew Braccia.
“The bigger story here is there’s just this global trend of… accessibility,” he said.
Start-up investors also see opportunity in the infrastructure behind the trading apps. DriveWealth, which serves Mexico’s Flink and 70-plus other online trading apps around the world, has hundreds more partnerships in the pipeline, according to founder and chief executive Bob Cortright. DriveWealth provides the technology to power digital wallets and trading apps, and also provides clearing and brokerage service to its business partners.
“This is this is only beginning,” said Cortright. “The fact that you could have a smartphone in your hand in India, for instance, and buy $10 worth of Coca-Cola stock at an instant, that’s pretty game-changing.”
Venture capital investments in U.S. fintech companies hit a record last year with $20.6 billion invested, according to data firm PitchBook. Globally, around $41.4 billion was invested in fintech companies in 2020.
(Reporting By Jane Lanhee Lee in Oakland; Editing by Jonathan Weber and Dan Grebler)
Analysis: Debt-laden world, rising bond yields – a toxic taper tantrum combo
By Dhara Ranasinghe and Karin Strohecker
LONDON (Reuters) – In May 2013, bond investors threw a tantrum after hints the U.S. Federal Reserve might slow the money-printing presses. A similar selloff now, with another $70 trillion added to global debt, could prove to be far more vicious.
A 2013-style “taper tantrum” was named as one of the top market risks in BofA’s February poll of fund managers who fear a pick-up in inflation expectations might soon persuade central banks to start withdrawing or “tapering” stimulus.
Some like former U.S. Treasury Secretary Larry Summers even predict this will happen sooner than anticipated if huge government spending sparks runaway inflation.
Such fears drove U.S. 10-year borrowing costs to near-one year highs on Tuesday. Equities slipped off record peaks; long-dormant gauges of Treasury market volatility flickered into life.
“Higher rates means higher rates volatility, means higher spreads and market selloffs as we saw back in 2013,” said Kaspar Hense, portfolio manager at BlueBay Asset Management who has pared exposure to Treasuries, expecting their 30-40 bps year-to-date yield rise to continue.
“There is no doubt the risks are greater this time around than 2013 because of the high leverage in the system.”
Global debt today stands at $281 trillion, according to the Institute of International Finance, versus $210 trillion in 2013. Companies and households too owe significantly more.
Economic growth and inflation can whittle away debt. Yet the very policies put in place to aid recovery can encourage more borrowing.
Debt is keeping central banks in “a loop of never-ending provision of liquidity and of very low interest rates,” said Steve Ellis, global fixed income CIO at Fidelity International.
“The only way to keep the plate spinning is keep refinancing costs low.”
Graphic: Debt levels on the rise since 2013 Taper Tantrumb – https://graphics.reuters.com/GLOBAL-BONDS/TANTRUM/bdwvknkrepm/chart.png
What bears watching is the “real” or inflation-adjusted bond yield that represents the true cost of capital. The 100 bps-plus spike in real U.S. yields of 2013 has not happened so far this time, sparing equities and emerging markets the fallout.
It also implies markets are not factoring a central bank response to higher inflation expectations.
That may be why, taper tantrum fears notwithstanding, BofA survey participants are holding equity and commodity allocations near decade-highs — with real yields near minus 1%, U.S. stocks still pay a 5% premium over bonds.
HIGHER, LONGER, WILDER
It’s not just the sheer weight of debt that makes markets more sensitive to interest rate moves.
After the interest rate collapse of recent years, just 7.8% of global government and corporate bonds on the Tradeweb platform yield 3% or more.
Global shares trade at 20 times forward earnings versus 12.5 times in May 2013.
Investors have fanned out into higher-yielding junk-rated debt and the BofA survey found a record proportion holding above-normal risk exposure.
Finally, investors are loaded up on longer-maturity debt.
Duration — how long it takes to recoup the original investment — is now 8.5 years on the ICE BofA World Sovereign Bond Index, two years more than in 2013.
Graphic: Investor exposure to duration rises – https://graphics.reuters.com/GLOBAL-BONDS/oakveradypr/chart.png
Longer-dated assets also expose investors to higher ‘convexity’ in the price-yield relationship, meaning a small rise in yields causes outsize losses.
That’s been highlighted this year to holders of Austria’s 100-year issue where a 35 bps yield rise has knocked prices 20% lower. Similarly, a 40 bps rise in 30-year U.S. yields has translated into a 4% price fall.
Ellis estimates holders of 10-year Treasuries would lose 4.62% over a month if yields rise 50 bps from current levels. A similar rise would have caused a 4.46% loss in 2013.
Similarly, JPMorgan Asset Management calculates a 1% rise across the U.S. curve would cause total annual price returns on a 30-year Treasury to fall 19%. Two-year notes would suffer a 2% price loss.
NOT ALL BAD
Some say delaying the tantrum might make matters worse.
“It’s better to put up with the tantrum when someone is two than when they are 14,” said David Kelly, chief global strategist at JPMorgan Asset Management.
Graphic: Are markets gearing up for another taper tantrum? – https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxwndrvx/tapertantrum1502.png
But most policymakers have made clear they will not hurry. Cleveland Fed President Loretta Mester for instance said the Fed was keen to avoid taper tantrums and wouldn’t withdraw support until the economy was stronger.
Central banks also are less keen than previously to tighten policy in response to a price surge, having repeatedly pledged low rates even if inflation overshootsm.
Scars from 2013 and higher global indebtedness will force central banks to “lean against” market tantrums, asset manager BlackRock reckons.
Finally, emerging markets which bore the brunt of past tantrums, appear better placed this time. Many countries, including those reliant on foreign capital in 2013, now run balance of payments surpluses.
“Positioning in emerging market securities and currencies is far below previous cycle peaks, especially 2013,” said Bryan Carter, head of EM debt at HSBC Asset Management, pointing to higher bond risk premia and cheaper valuations.
Graphic: U.S. yields and EM capital flows – https://fingfx.thomsonreuters.com/gfx/mkt/oakvermzxpr/US%20yields%20and%20EM%20capital%20flows.PNG
(Reporting by Dhara Ranasinghe, Sujata Rao and Karin Strohecker; additional reporting by Saikat Chatterjee; editing by Sujata Rao and Toby Chopra)
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