What is a Stock? – Investing for Beginners

Video Overview

Now that you have created your budget and fully funded your emergency fund you are ready to start investing. Now I know you are wondering, I want to invest but I don’t know where to put my money. No worries, you are in the right place. Today I will be covering what a stock is, how you can obtain your first free stock and finally how you can start investing today and begin your journey of becoming financially fit.

What is a Stock?

A stock is a share or ownership of a company. It entitles you to a share of the profits gained each year and allows you to vote on major decisions the company plans on making.

Why do Companies Sell Stock?

Companies want to grow and expand, and to do this they need money. To raise money quickly, companies sell their stock to buyers like yourself.

Stock Market on a Computer Screen
Get invested early and often, and stay invested

How can I Make Money from a Stock

if you are the owner of a companies stock you can make money from it in a couple of different ways:

  • Capital Appreciation – This is the typical way the majority of investors make money from investing in stocks. Investors buy a stock, not for the ownership benefits that come from holding the stock, but instead for the chance to sell it at a higher price than what the originally purchased it for in the future.
  • Dividends – The owner of a stock is entitled to his or her share of a companies profits. Depending on the company, these excess profits or reserves are typically paid out either every month, quarter or year. The dividend can be distributed in the form of money, additional stock or in some rare instances other assets from the company.

What Stocks do you Recommend?

Invest in what you Know

Investing in the stock market is not easy, and picking stocks can seem overwhelming at times. When investing in the stock market beginners should try to put their money in things that they know and love. Most individuals have purchased or utilized the services from Facebook, Amazon, Apple, Netflix or Google in the past month; so that may be a good place to start.

Other good alternatives could be the fast food chains that you frequent like Chipotle, McDonalds or Starbucks. Each company has its pros and cons, but if you are already spending your hard earned money in them, you might as well join in on the profits the companies are pulling in every year.

S&P 500

If Individual investing isn’t for you then there is still a great option for you to get invested. The S&P 500 is a compilation of 500 of some of the largest companies in the U.S.

Money with a Globe
The internet has made it easy to buy and sell stocks from companies all over the world

A fund like the SPY aims to mimic the gains or losses of the S&P 500 while giving each owner exposure to many more companies than they could individually buy at one time.

How can I buy a Stock?

Now that you know what stock is and how you can gain from owning them, it’s time to make your first purchase. Most, if not all stocks can be purchased on your phone or laptop through a discount broker. A broker like Robinhood offers fee-free investing with no account minimums. I highly recommend this account for new investors because of the simplicity of the app. They also provide free insights into current stock market conditions, and did I mention no fees?

Summary

In summary, if you want to build wealth and become financially fit, owning stocks is a key factor. Stock investing is meant to help you grow your net worth over the long haul and you should go into it with a long-term mindset. Diversification is key when investing in stocks. Make sure you do your research before you purchase to make sure the company is right for you.

If you’re ready to get invested, head over to Robinhood to get your hands on your first FREE stock. Parting words of advice, always remember to buy-low and sell-high!