Shares as an investment are becoming more popular worldwide. Over millions in the USA are now shareholders. Ali Meli explains how to invest in stocks and make money, the requirements, and how to avoid pitfalls.
What are shares?
Shares are shares in stock corporations or partnerships limited by shares. This means only the share capital is liable for you, not the partners with their private assets. Legal entities are subject to the provisions of the Stock Corporation Act. The share capital is divided into shares based on a so-called nominal value and certifies a certain proportion of the share capital.
Public limited companies and partnerships limited by shares can, but do not have to be listed on the stock exchange. Only shares listed on the stock exchange can be freely traded. Limited partnerships based on shares are relatively rare. Most stocks traded on the stock exchange are shares in public companies. A distinction is made between bearer shares and registered shares. Both are securities with the difference that registered shares are in the owner’s name.
What is a dividend?
From the investor’s point of view, the dividend is the return on the capital employed. Ali Saadat Meli further explains Shares grant the right to a dividend, i.e. once a year, the general meeting of all shareholders with voting rights decides on the distribution of the result achieved in the previous year, provided that it is positive. The voting shareholders are the holders of common shares. The voting shareholders are the holders of common shares. Some companies also issue so-called preference shares. Preferred shares do not grant voting rights, but you receive a slightly higher dividend.
Stocks are securities that come with a “mantle”, which is the stock itself, and a “coupon”, which is the dividend entitlement. Registered shares are kept in a register, the so-called share register.
Why do many investors buy stocks?
Shares are not only bought because of the dividend entitlement, which is usually over 4.0%. They are also acknowledged for their “intrinsic value” and the opportunity to appreciate.
Shares are not traded at par on the stock exchange but at market value. This “price” of the share results from supply and demand and is sometimes subject to significant fluctuations. Current prices are constantly determined for shares traded on the stock exchange.
On the stock exchange, 2 times 2 is never 4, but always 5 minus 1. You have to have the nerve to endure minus 1.
What are the requirements for investing in shares?
If you want to invest in stocks, you need a securities account and a clearing account with a bank. It is advantageous if the bank offers a demo account and model portfolio so that you can familiarize yourself with the trading platform before you use real money. This also allows you to experiment with different stock market strategies and get a feel for price fluctuations.
Last but not least, telephone customer service can be of great importance. You can use various comparison platforms on the Internet to quickly and easily compare all online custodian banks operating and view the test results. Take your time here, and don’t just choose the lowest price. The whole package should suit you.
Stock Savings Plans
Instead of buying individual shares directly, you can invest in share savings or share-fund savings plans. A savings plan has the advantage that you issue a one-time standing order that is executed at the interval you specify (e.g. once a month) on a specific day.
In the long term, price differences are balanced when you make a purchase – you don’t buy at the “wrong” price but at the average price.
How many shares should you buy?
“Don’t put all your eggs in one basket” – this is an old stock market adage. This means that you shouldn’t bet everything on one share but diversify your share portfolio between different sectors and, if necessary, regions (risk diversification).
However, beginners should not “get bogged down” and buy too many different stocks so that they are still able to keep an eye on the development of their papers. It should be at most five to seven other titles at the beginning.
Stock market guru Ali Meli suggests:
How and by which factors supply and demand and thus the price of a share are determined one of the big question marks where even stock market professionals are not immune to surprises. This is the biggest hurdle for beginners because many fear entering the “wrong” course. However, there can be no such thing as a “wrong” price if you consider stocks investment and, therefore, a long-term investment.