Investing can be scary especially after the 2008 stock market crash and now the current pandemic. Is it worth the risk to invest? If it is then how can we do so responsibly? These are fair questions that have to be asked. Before we get to that let’s start with the basics.
WHAT ARE STOCKS?
Stocks are equity investments, which means owning a stock means you own a small piece of the company.
WHY DO COMPANIES ALLOW INDIVIDUALS TO OWN PART OF THEIR COMPANY?
That is a corporation’s way of raising money. It’s an alternative to taking a loan.
HOW DO I MAKE MONEY WITH STOCKS?
There are two main ways. Selling at a gain and dividends.
Selling at a gain means you purchase a stock today let’s say for $60 and 5, 10, or 20 years from now you sell your share of stock, but at that time the stock price is $100. You just made $40. That’s a small example. The possibility to make thousands is available in the stock market. However, it’s important to note that things can also go the other way and money can be lost as well. Also, if a stock is sold a year or less after purchase tax on the gain ($40 in our example) is higher. Anything held over a year is taxed a reduced rate.
The second way to make money is through dividends. Certain shares of stock make quarterly payments to their investors.
HOW DO I START INVESTING IN STOCKS?
The easiest way for most is through a 401(k) if your employer offers it. If, however, your goal isn’t just to save for retirement then a brokerage account is another way. In this article we are focusing on stocks, but a brokerage account has many other options including mutual funds and EFTs. We will discuss those in a future article. Starting a brokerage account is easy through companies like Merrill Edge, E-Trade, and Vanguard.
Today, there are even more options for the first time investor. Companies like Betterment and Acorns make it easy to get started. An even simpler option to test the waters can be found in the popular Cash App. Cash App is convenient way to send money to friends and family but it also has an investment option. They allow micro investing which means you can get started with just $1. Stock prices vary. One stock can be $10 or $100 or more depending on the company. If you’re not ready to make a large commitment, cash app is a great option. You can purchase a portion of a stock. For example, you can buy $1 of Nike stock and $3 of Chipotle stock. There are so many options.
Now back to our original questions. Is it worth it to invest? Absolutely! There’s the potential to earning way more than the .01% that major banks are offering on savings accounts. OK, then how can I do so responsibly you may ask? The answer is educate and diversify. Topics we will cover in our next article.
Until Next Time,
Crystal
Crystal Hicks is an accountant with well over a decade of experience in tax, finance, audit and accounting in New York and Florida. Each week in Money Talks, she’ll share her advice to help individuals to navigate their financial challenges!
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