Things You Need To Know Before You Invest In The Stock Market

I’d like to digress from the usual family-related topics so now, I’m going to talk about some things you need to know before you invest in the stock market.

Not a long time ago, I was completely naive about stock market-related matters. I didn’t even know how to read graphs or what the green and red arrows on Bloomberg channel meant. It was only when I got married that my husband explained to me the nitty-gritty of his bread and butter. What I thought to be out-of-this-world is after all not that hard to understand.

When it comes to investing in the stock market, many people think it’s an opportunity to make easy money without much effort. When they learned that their friends made money in stocks, they also jump in the investment bandwagon right away. They do this without any knowledge of the market and stocks. Most of them don’t even know what they are getting themselves into. Before they knew it, they already lost a hefty sum of money if not all of it. They couldn’t believe how fast their money disappeared. This is where they arrive at the conclusion that investing in the stock market is very risky and evil. They then go around and tell people to stay away from it because they might end up losing their shirt as well. However, there are a few people who emerged very successful and they are usually the ones who know that investing in the stock market requires some degree of skills.

Before you even think of investing in stocks, it is important to not only read about it and how everything works, but also to define what your goals. Why do you want to invest? What will you do when you reach that goal? Will you be cruising in Alaska? Buy a new car? File for an early retirement? Put up a business?

My husband and I are thinking of buying a Honda Odyssey so we bought some Honda stocks. Our goal is to let our Honda stocks yield a good return to pay for that car. Once that happens, it’s like having it for free. Isn’t that neat? We’ve also been too consumed with working online these days and we mainly rely on food delivery service. We usually order a quarter-pound burger and fries from McDonalds so we thought, why not buy some McDonalds stocks and get free lunch for a month at least? Yesterday, my husband said that everything that we ordered from McDonalds is paid for already because McDonalds is doing well in the stock market especially when it introduced its hot coffee to compete with Starbucks.

Setting your goals is important because you exactly know where your money is going. Your goals will also serve as your motivation to invest, and they will also help you make smarter investment decisions along the way.

Most people regard the stock market as a cash cow. They developed this thinking that if they want to be rich overnight, then investing in stocks is the way to go. This is of course possible but happens very rarely. If you have high hopes that you’ll be a millionaire overnight, then, you are most likely to not make it. But, if you are unfazed and want to get rich quick then you should immerse yourself in studying about high-yield, short term investing. We’ll talk more of that in the future.

There are two ways to invest in the stock market: you do it yourself or have someone do it for you. If you decide to do it yourself, you have to observe the market behavior first and do your research on what stocks are good to buy. You also need to know the process of opening a brokerage account all by yourself.

If you decide to get a broker, make sure the broker is a member of good standing at the PSE. You can check the complete listing of the PSE member-brokers to avoid getting scammed. You must also realize that hiring a broker will cost you some money. But the broker will make things easier for you because they can send you market reports, give you advice on stock selection, the timing of purchases and sales, trade executions, and the like.

So these are the basic things that you need to know before you invest. Remember that investing in the stock market takes more than calling your broker and telling them what stocks you want to buy. It entails a lot of reading and knowledge about the market if you are serious about it and really want to be a successful investor.

Suggested reading: One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch (Author), John Rothchild (Author)