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The Fundamentals of Investing

To a newbie, investing may seem extremely confusing. But, it isn’t, as long as you grasp the fundamental concepts of investing.


The gist of investing is that you (a shareholder) of the company buys a piece of a company in the hopes of making some return investment on the money you initially paid to have a piece of the company.


Now, this might lead you to the next question which is: How much does it cost to buy a stock? The short answer is that it depends on which company you opt to buy. There are several factors that dictate how you plan to invest in the stock market. This includes taking into consideration what type of investor you are, the stock you want to buy, and the company you decide to invest in.


To consider which type of stock you may want to invest in, you need to consider what kind of return you are expecting and your appetite for risk. If you’re new to the stock market, you’d likely want to stick to a safer investing plan. Some of the stocks you may consider investing in are big companies such as Apple or Amazon. The reason for this is that their stocks are usually more predictable in terms of their response to market fluctuations. Usually, these big companies won’t drastically increase or decrease in valuation but the returns may take a long time to accumulate. On the other hand, if you have a strong appetite for risk and have experience investing, you may consider diversifying your stock portfolio to include more risky investments, such as penny stocks. Penny stocks are based upon small public companies that, as the title implies, trade less than a dollar per share. These stocks are particularly risky because they fluctuate immensely in valuation and are hard to sell. Say that you brought a penny stock in the morning for $0.10. In the afternoon, the price per share increased to $0.15. You might not be able to sell it because most people avoid buying penny stocks due to their high market volatility and there aren’t that many sellers out there waiting to invest in these stocks.


The next common question about investing is whether you need to pay taxes on money that you earn from stocks. The short answer is yes. Firstly, you have to realize that once you get returns from your initial investment, that is called a “capital gain.” Realize that there are two different tax payments. If you sell the investment before a full year, the rate of taxation on the capital gain is the SAME as your regular tax income rate. However, if you wait for the one year taxation mark, you will only have to pay 15% taxation on the capital gain.


The last question to tackle here is if there is any requirement before you can start trading in the stock market. There is no requirement but if you want to start investing, you need to open an investment account at a brokerage firm which provides a wide range of financial services to allow you to buy and trade stocks. Of course, having some money is needed but my best piece of advice for all is to gain some experience in the stock market to boost your confidence and be patient as investments don’t grow overnight. Good luck!