Finance News

The stock market for young investors

The stock market for young investors Author: Jake Parma  The stock market is intriguing, frightening and exciting all at once. You have probably seen brokers on television in Merino suits worth more than your car shouting inaudible orders at a Wall Street exchange. But what is actually happening here? Investing in the stock market is an interesting and rewarding way to use your money and take advantage of a range of opportunities. What is the stock market? If a company requires funds to undertake a new project, they may ‘go public’ and issue shares. They may issue an ‘IPO’ into the primary market so investors can exchange their cash for a share in the company. These shares can be traded on a secondary market such as the Australian Stock Exchange. Owning shares means that an individual is able to participate in some of the company’s decision making. Advantages and Risks Investing in the stock market can grow your wealth due to the appreciation (capital gain) of your stocks as well as the income earned (or dividends). Some companies offer dividend reinvestment – rather than receiving cash, you can automatically purchase additional stocks, usually at a discount. Another advantage is the countless options to allocate your money to – companies, industries, exchange traded funds, real estate trusts and hundreds more. But it’s not all smooth sailing. During the Global Financial Crisis, millions of investors lost capital. Financial institutions went into liquidation. Owning stocks comes with the risk of potential negative returns. Moreover, shareholders come last in the hierarchy of who gets their money back should the company go bankrupt. A few helpful tips: Take advice with a grain of salt Would you rather take advice from Warren Buffett or the taxi driver who took you home last night? The correct answer is neither. Do you own research so that you can decide where you feel comfortable investing. Expect negative returns Statistically, stocks produce a negative return once every four years. Markets are volatile and experience fluctuation. Do not panic if a situation like this occurs. More often than not, stocks are capable of rebounding and producing long-term returns. Take a long-term approach There is potential to make significant gains from the long-term appreciation of a stock and the annual cash flows involved. Moreover, a long-term strategy is likely to withstand negative returns associated with short-term volatility. Diversify your investment Don’t put all your eggs in one basket. Diversification reduces your risk. Rather than invest all your money in one company, spread your total capital to produce a well-diversified portfolio. If you would like to learn more about the stock market and the options that you have to invest your money, contact our office to speak to one of our accredited financial planners.   General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

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