Why should you buy stocks, and what kind of stocks should you be looking for?
Over the past decade, it’s become immeasurably easier to buy and sell stocks on the major U.S. stock exchanges. There are countless brokerages out there that allow you set up an account and buy stocks for a fraction of the commission costs that were traditionally charged.
However, novice investors often fall into the trap of simply following a popular trend and investing their money in something that they have very little knowledge about. This leads to pain down the line if share prices fall and you have no idea why.
So why should you buy stocks? And what kind of stocks should you invest in?
Why should I buy stocks?
Owning stock means owning part of a company.
If you’ve ever wanted to own a piece of a great business, you can do this by simply purchasing company stock. Buying stock is essentially becoming a part-owner that is entitled to a share of profits and assets of that business.
As an investor, you profit from owning stock in one of two ways:
- The company can decide to return money to its shareholders via dividends. This is cash that is paid to you on a regular basis for being a shareholder.
- The business grows and the value of the shares increases. Once you decide to sell your shares, you pocket the difference.
While money sitting in a savings accounts gets eaten away by inflation, invested money is working for you 24/7. Unlike a bank account, your original outlay (amount of money invested) can multiply many times over if invested in the right companies.
On average, the stock market has returned around 10% annually since 1974 (not factoring in inflation). That easily beats the 0.5% per year you’ll typically make by keeping your money in a savings account.
What sort of stocks should I invest in?
At Rubicoin, we believe that the best way to start your investing journey is to buy one single stock in a company that you believe in. Once you’ve done that, you’ve officially become an investor.
We’ve already outlined some of the reasons why investing in the stock market makes financial sense, but the most important reason is a pretty simple one—most people know a lot more about the stock market than they think.
The stock market is a collection of the companies that we interact with every day.
Do you use an iPhone? Or maybe you prefer a device on Google’s Android system? Do you go to a Planet Fitness gym at lunchtime, decked out in some Lululemon or Under Armour gear? Maybe you hit up a Chipotle Mexican Grill instead, driving there in your trusty Ford or a brand new Tesla.
As consumers, we all have opinions and biases towards companies like this. When you start thinking like an investor, this gives you a massive advantage in identifying a good investment.
Think back to 2001. When people first saw the iPod, they were blown away by how user-friendly and functional it was. Consumers bought the device in droves. However, people that were thinking with their investing hat on that saw the bigger picture. It was these consumer that bought a couple of shares in Apple rather than settling for the immediate satisfaction of owning that iPod.
Shares in Apple have increased in value by about 13,000% since then.
The most important thing to do when you start investing in the stock market is to buy something you believe in. When you love what a company does, you’re more willing to stick with them through the tough times.
To become a successful long-term investor, you need to invest in a business you’re happy to hold onto for 5-10 years. You’ll never do that if you blindly follow the crowd and don’t really believe in the company’s prospects.
Investing in what you know and love is so important and why stocks are the right path for early investors. The best stocks are the ones you never sell, and if you pick a brand you believe in, you’ll never want to.
Learn the basics before you start investing with the free Learn by Rubicoin app, available for iOS and Android now.