How to Invest in the Share Market

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Just like in a chess game the share market sometimes can be tricky with lots of twists and turns as you walk along the path of an investor, and if you haven’t thought it out carefully you could lose a huge sum of your money in one instant. Therefore you will need to have a financial plan that will evaluate your current financial position, determine the kind of risks that you’re willing to accommodate and whether or not you have adequate knowledge and skills to go through with it. You will also need an investing strategy to follow. If you rush into something that you only have so much as a vague idea of, then it could be detrimental to your finances.

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Understanding how you plan to invest involves looking at your immediate financial position, considering your level of knowledge and confidence in your investing skills and considering the stage of life that you are at, for example, investing when you are young may look different to investing when you are near retirement age. The other thing you should understand is your risk profile. After all, you need to be able to sleep soundly at night!

Your strategy should provide you with a set of guidelines to follow and should ensure that you maintain a consistent approach to investing as well as diversifying your investment. This means that you choose various different asset-class to put your money on, because there’s no guarantee which asset-class will score well today and which will go down tomorrow.

Once you’ve determined a strategy then it is always strongly advised to undertake some form of simulation to test your system prior to putting your hard earned cash on the line. This is particularly true if you are looking to trade shares in the short or medium term. Some investors simply buy and hold shares with a long term view that they plan to simply ‘ride out’ market fluctuations. For some this is a perfectly valid strategy also. The key point is that you have given thought to your strategy rather than simply jumped in without understanding the risks and benefits.

Keeping records of how well or how badly your shares perform is also a very good thing, because it allows you to track your progress and understand how your investment and investment strategy is performing.

Types of Sharemarket Analysis

There are two main forms of share market analysis, fundamental analysis and technical analsyis. Investors may choose either one or a combination of both forms of analysis in selecting shares and determining the best shares and timing for buying and selling.

Fundamental analysis is where an investor studies a company, including anything that may affect the companies earnings and overall value, such as the company management, sector performance, company earnings and expenses. This sort of information comes from company reports, historical sharemarket data and the media. Many people rely on this sort of analysis to determine which company to invest in. There are several markers, or key pieces of information to be assessed, including:

  • Annual reports
  • Dividends paid and dividend yields
  •  Earnings per share (EPS) and price earnings (PE) ratio

Technical analysis is about analysis of historical price movements of a share and the market in general. Many investors believe that by understanding the charts one can best estimate where a share price is heading. There are many different types of charts as well as mathematical chart indicators used in technical analysis.

SummaryDow-Jones-on-iPhone-with-market-data

The potential for increase in wealth and even financial freedom is attractive to many, however, knowledge of share market basics are key in understanding stock market terms and processes before you launch yourself into an investing career.

There are risks and benefits that one must education themselves on before investing and it pays to develop a set of rules of guidelines to follow that are congruent with your overall strategy.

Education is the key to understanding stock market workings and increasing your knowledge of share market basics should precede putting your hard earned money on the line. After all, the aim of the game here is to increase wealth, so why not maximise your chances!

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Share Market Basics: Benefits of Investing in the Share Market

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Investors can benefit from owning shares through receiving dividends or cashflow or through the increase in value of the share, known as capital growth. Money invested in purchasing company shares and trading it in the share market can give build wealth and even provide financial freedom. Just think of things that you can do with having a good investment in the share market. You could retire at 40 or 50, that’s 10-20 years early for your retirement age, and since you’ll be retiring early you can go on a long vacation and tour the world. You could also write your own autobiography or a potentially best-selling novel, settle your mortgage once and for all and so much more! Now that’s some share market basics that’s very interesting to ponder on! Before we get carried away with what could happen, you’ll need to understand how to invest and also understand the potential risks of the share market.

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Shares are also a very liquid form of investment. It is relatively easy to purchase and to sell shares in the short term. You can purchase and sell the same shares even on the same day. Compare this to other types of asset classes, such as property, and you can see the shares are a very simple way to get in and out of investments.

Shares also provide flexibility. You can divide your capital between different classes of investments and different sectors of the market very easily.

What are the Risks involved in share market investing and trading?

There are a number of risks involved with investing in the share market, which is why understanding stock market is so important. You need to know what they are before putting your money on the line. Some unknowledgeable people often refer to investing in shares as betting or gambling, we don’t think so.  Betting is a term used for wagering money at certain odds on the outcome of a market, often when doing so the person has no real knowledge of their bet. When we invest in shares we research each company first much like realestate investing on investing in businesses. If you just want to take a bet then you can read more about betting in Australia here.

Some of the risks include:

  1. Risk of Capital Loss – When the company where you own a share is not performing well, the value of your share may drop. It can drop a little or it can drop a whole lot! As a result your shares then become “unwanted” by other investors and you’ll be forced to sell it at the negotiated rate in favor of the buyer.
  2. Volatility Risk – Share values can rise and fall rapidly and can fluctuate many times over their life.
  3. Timing Risk – Share market cycles affect risk and particularly risky times are when a market or market sector is in sharp rise or sharp decline.
  4. Risk of Low Quality Advice – Where you decide to rely on the advice of others for your investing you would hope that the advice you receive is sound, however, there is a risk of poor quality advice which can impact upon your investment.
  5. Legislative Risk – Changing laws could also affect your investments.
  6. Currency Risk – Currency moves in the global market can also pose risk to your investment.

If you’re willing and ready to accept these risks, then you can go ahead and purchase shares in order to start your career as a sharemarket investor. Why share prices go up and down

There are many things that can impact upon the prices of shares.0592850a0b4a8be78a20bcac563a82eb

 

This includes:

  • Economic growth and situation locally
  • Local interest rates
  • Commodity prices
  • Investor confidence and sentiment
  • Government policies
  • Global economic factors
  • Exchange rates
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Share Market Basics: What is the Share Market?

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If you’ve been thinking of investing in the share market, but you’re unsure of even the share market basics then read on. In this article we will break down the tips, share market basics and share trading basics in order to give you an overview of what it means to invest your money on stocks, shares or bonds and how you can trade them in the share market.

What is a share?

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At it’s most basic, a share is simply part ownership in a company. Companies are able to provide finance for their business by becoming listed on a stock exchange and issuing shares for sale to interested investors. This is known as ‘going public’. An investor, by purchasing a share, is buying ownership of the company and the money.

Shareholders have rights associated with the company also, such as the ability to participate in annual general meetings and receiving information or reports about the company in which they have invested.

What is the Share Market?

A share market is essentially the place where you trade shares with other shareholders through the assistance of a stock broker. Many countries have a share market, include the United States, United Kingdom, Japan and Australia.

The main purpose of the share market is to:

  • Operate the primary market – this is where companies are able to raise money by issueing shares.
  • Operate the secondary market – this is where investors can trade shares, both buying and selling, based on the market forces in play at any one time.

A company can determine how many shares it will issue depending on how much money it needs to raise and the size of the company. Owning many shares in a company gives the investor a larger piece of ownership and therefore greater control. Companies can also choose to buy back their shares or to issue more shares.

What is Share Trading?Stock-Market

Share trading is where shareholders buy or sell shares. People often wonder why share prices rise and fall, but it is simply the interplay of market forces that drives share price.

Investors are not allowed to trade directly with a stock market, they must act through a stockbroker. Investors can trade through full service brokers, which are brokers who provide a trading service, but also provide advice, strategic planning and recommendations. Investors may also use a broker who does not provide recommendations or advice and merely acts to execute trades for a brokerage fee. Brokers may provide online, phone or personal service.

The sharemarket is regulated by an overseeing body to ensure that the rules (and laws) of investing are adhered to.

Obviously share trading basics is a pretty big topic and we’ll be delving deeper into this on this website.

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