Knowledge of what is a stock market and why you should invest in it is essential for every budding entrepreneur in this area. But before that, one must understand the meaning of investment and its importance in the context of stock market.
What is investment?
Investment, simply put, is a process of purchasing assets in order to make profits. A profit is usually a reasonable and predictable amount of income over investment. It is unlike gambling, where you can make or lose huge amounts in matter of moments. The income from legitimate investment may come in forms of dividends, interest or rentals and appreciations over the long term.
Why should you invest?
Money does not grow by itself unless it is invested. Money should not just grow but it should also grow sufficiently to annul the effects of rising inflation. The rate of returns on your investments should be greater than the rate of rise in inflation so that you are left with sufficient amount to meet your needs over a period of time.
When you invest your money in stocks, your objective should be to create wealth not only for your daily needs, but also for retirement, marriage, education, vacations, entertainment, medical expenses, and purchasing real estate etc.
You may also aim at improving your standard of living or leave your money to your next generation. You may also want a little extra money to have some fun in your life that you have been planning.
Above all, making money by itself is an exciting morale booster. It increases self-confidence, self esteem and puts springs in your feet. Money is considered next to God, if there is one.
What is the optimum time to invest in stock market?
It is always better to try creating multiple streams of income including from stock markets. If you are already employed, start investing in stocks as a part time job.
Since it takes sufficient time and experience to master the intricacies of every trade, it is advisable to start investing in stocks as early as you become legal and get your social security and IRS identification numbers. An early bird is always a winner.
Start small and be cautious. Take your time to learn the fundamentals of stock investing. Another important reason why you should invest early is that your money will have sufficient time to grow.
There are several stock investment plans which are comparatively risk free and generate geometrical returns on your investment without creating needless tensions that are invariably associated with most businesses.
Money grows fast with compounding effect. Compounding, according to Einstein, is the eighth wonder of the world, but it requires time to show its effects. The more time it is given, the more money it returns on investment. So if you start investing in stock market as soon as you become a major, you give your investment the maximum possible time to grow.
One reason why you should start investing early in stocks is that you can invest regularly over a long span of time. The concept of regularity is inherently related to a longer span of time. You cannot be a regular investor for just six months and expect any appreciable returns. Regularity can fructify only if it is practiced over a sufficiently long span of time-for decades. It is like physical exercise. You cannot build (financial) muscle just in a few days.
Consult your stock broker about which stock investment plan suits your individual circumstances. Set apart some amount-even a small amount– from your monthly income and authorize your broker to automatically draw that amount from your bank account for investment in your decided plan. Just don’t forget to check the results of your investment at least for an appreciable time. The returns may appear measly at the earlier stage, but you will be blown off if you check them after some time.
The golden rule, therefore, is that you should invest regularly over a long period of time. There are several stock investment plans such as Individual Retirement Account-IRA– Roth IRA, Education Saving Account-ESA, 401(K), 403(b) etc.
Knowledge is power
Study the various stock investment options in deep detail. Consult your broker. Read books and magazines, both online and offline, so that you can take fool proof and self-informed decisions. As you study and act more, you will evolve an impeccable intuition about the areas and suitable time for investment.