Once adulthood truly sets in, many people starting worrying about things like how to build wealth. Some people aim for high-paying careers or climbing the ladder. Others look into buying a home and using that as a foundation.
Plus, there are always retirement accounts, although those specifically don’t help you build wealth for the now. For those with some disposable income, though, buying and trading stocks is a popular option. Never considered the stock market before?
Keep reading for our brief introduction to help you get your stock investing underway.
What is the Stock Market?
For practical purposes, the stock market consists of a group of exchanges. Exchanges list the stocks or securities that you can invest in. There are a number of exchanges across the world, such as:
- Nasdaq Composite
- Tokyo Stock Exchange
- Shanghai Stock Exchange
- New York Stock Exchange
These exchanges let you buy or trade stocks, which are tiny ownership shares in a given company.
How to Trade Stocks?
First up in trading stocks for beginners, you will need a brokerage account. There are full-service brokerage accounts where you get specialized advice from a broker. Then, there are also low-cost brokerage accounts that typically operate online and require much smaller deposits.
The tradeoff with low-cost accounts is that you can start buying and trading stocks for a lot less, but you don’t get the personalized service.
Brokerage account services often operate in specific geographic areas. For example, US investors might use something like E*TRADE, while Australians might use a service like Monex.
You place your orders to buy or sell through your brokerage account. The broker then executes those transactions for you on the exchange.
The stock market is one place where the learn-by-doing approach is terrible advice. At least, it is if you learn with real money. Many brokerages offer a simulated version of their brokerage accounts called paper trading accounts.
These accounts let you learn the ropes of that brokerage account system, practice making orders, and see how your choices would play out in the real world. It’s an excellent way for you to get your feet wet without taking a financial bath.
Keep in mind that, if you do successfully trade stocks and make a profit, there are tax implications involved. Profits on stock transactions incur something called capital gains tax. The exact tax rate varies depending on how long you held the investment and your tax bracket in the year you sold the stocks.
Trading Stocks and You
If you’re like many adults, building wealth is at least a long-term priority for you. If you already own a home and contribute to retirement accounts, trading stocks is another way you can potentially build wealth.
You will need a brokerage account, preferably with a major brokerage firm, for investing in stocks. You should also practice for a while with a paper trading account to get a feel for the system and test your investing savvy.
Looking for more financial tips or insights? Check out the posts in our Money section.