Stocks - How you can make or lose money through them.
Nau Mai Hoki Mai Whanau Maa!
Stocks are a great investment for those who do no have enough money to enter larger investment options such as property. If you need a beginner's guide to investing in stocks then please click here. Alternatively, if you would rather it in video form, then you can watch this here:
Quick recap for those who need it:
A stock is a small piece of a company.
You can purchase stocks/shares through different apps or websites. In New Zealand, we have Hatch, Sharesies, or some other different ones.
You do not have to purchase a whole stock. Some of them are $900+ and so it is not feasible to purchase a whole stock. In these circumstances, you may buy part of a stock.
You do not need 'loads of money' to enter the stock market.
When a company increases in value, so too will your stock.
So, on to the juicy info:
How can I make money through stocks?
Stocks generate income in 2 ways. The first one is called 'capital gains' which is when it increases in value. The second one is called a 'dividend' which is basically the company saying 'thanks sis' for investing in them and their business.
Capital Gains
Dividends
It's simple.
A capital gain is when it sells for more than you initially purchased it for. It's not all rainbows: If you sell a stock at a loss - this will be called a 'capital loss'. This is one way in which you can lose money through stocks.
Dividends are a distribution of the profits amongst the shareholders. These are like little bonuses for the investors. The more money you have invested, the bigger your dividend will be.
So, How can you lose money through stocks?
All investing comes at a cost. All investing has a risk. Generally speaking, the higher the risk the higher the potential return. You must only invest what you are willing to potentially lose, and not money needed for necessities. You must do research before investing your money anywhere.
You can lose money through stocks by:
selling at a loss
a company liquidates
Selling at a loss is when you sell your shares or stocks during a stock market crash, or when the stock you own is not performing well. If you need the money for something urgent then you may do this. Otherwise, I would never do this. Having an emergency fund will prevent you from ever having to sell your stocks in a crisis.
If a company liquidates then your stocks will become worthless and you will also sell these at a loss or they will just disintegrate. By properly researching the business before investing in it, or by investing in managed funds - you can prevent this from occurring.