The basic idea behind investing in stocks is that you are investing in an actual company. Each stock that you purchase is part ownership in that company. Once you invest in a company's stocks, you own a share, or percentage, of the company. Shareholders are paid dividends when the company earns profits. These dividends can sometimes be reinvested in more stock in the company. With an increased amount of stocks a shareholder owns, the dividends also increase. Long term market investing is based on the performance of the company itself.
Short term strategies in trading is based on the rise and fall of market prices, where traders attempt to buy at low prices and sell at higher prices, creating a profit. Prices are a reflection of the perceptions of people. If a company is expected to increase in profitability, prices go up. If projections indicate a dip in earnings, prices fall. Short term investing in stocks can be very risky. Succeeding at it is usually a combination of extensive research and luck. Long term investments in the market over time show a great return on investment, though the point at which you sell yours will determine how much value it has.
Investing in stocks is categorized in groups, like technology, energy, large cap, small cap, growth, value, etc. Smart investors don't put all their eggs in one basket. Spreading out your investments in different categories and risk levels is called diversification. An investment portfolio is the collection of all of an investor's investment ventures. Spreading out investments over different industries is especially helpful in the event of a major industry downturn. Mutual funds are an approach to this idea involving investments from groups of people, pooling money to expand investment opportunities and diversify ventures.
Trading in the stock market has fees, but they have decreased in recent years. Returns on long term investing across the board in the market have average ten percent or more each year for over seventy years. This makes it a dependable investment vehicle overall and more profitable than bonds, CD's, and real estate over time. However, investing in stocks is a risk. Individual ones can rise and fall based on rumors, company reports, fears, news stories, and more. Savings for retirement through diversified market investments is a smart choice. The generally accepted practice is to move investments systematically to less risky investment vehicles the closer an investor gets to retirement age.