Although the stock market can be profitable, you need to have a solid understanding of what stocks are and how they can be bought and sold before you can begin to make any money.
What are Stocks?
Stocks are shares of a publicly traded company. When you buy a company's stock, you buy a portion of that company. There are two types of shares: common shares and preferred shares. Preferred shareholders receive guaranteed dividends; common shareholders do not.
Using a Brokerage
There are three ways to invest in the stock market. The first involves using a brokerage. Investors can choose a full service broker, who will offer investment ideas and prepare reports about investments, or a discount broker, which will simply execute orders. Discount brokers are considerably cheaper, and are usually the best choice for hands-on investors who are already familiar with the stock market.
Direct Investment Plans
The second way to invest in the stock market is through a company's direct investment plan. There is no commission to pay, and the stock is exactly the same. Investors who choose this method typically know exactly which company they want to invest in and how many shares they can afford to buy. If you are interested in going this route, contact the desired company and ask about the availability of a direct investment plan.
Dividend Reinvestment Plan
The final way to invest in the stock market is through a dividend reinvestment plan (DRIP). Companies that do not have a direct investment plan usually have a DRIP plan. To invest in a company's DRIP plan you need to hold at least one share in the company. You can then purchase fraction shares and build your portfolio without paying brokerage commissions.
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