The prospect of serious wealth generation is surreptitiously foiled by inflation, which can be defined as a sort of malicious tax levied stealthily by the government. Fiat money is generated out of thin air and the amount of money increases in circulation. As the money supply grows, the dollars bid and compete for the goods and services even more resulting in the spiraling of the general prices. This relentless monetary inflation does hit the poor but the investors with sizable capital at their disposal are not effectually shattered.
For an investor, the investment capital is generated from savings. He needs to consume less than his earnings. But recurrent inflation does manage to pose a dire threat to this hard earned investment capital. As it fiercely erodes the purchasing power, it radically alters the ultimate return too. He has to keep an eye on the net gain of his purchasing power and it must always be positive.
It makes sense for the investor to place his money in the stock market where the company deals with commodities. They should concentrate more on the real returns, which means, inflation adjusted returns, instead of the usual nominal ones. The commodity investors know exactly the market curve of the key commodities like gold or oil which is traded in real terms. It secures their investment portfolio. But in a situation where the investor earns say 100% when there is a rise in the price level by 50%, the investor’s perceived 50% gain is but an illusion. The nominal numbers gathered over years are meaningless. The true gains are calculated on the raw purchasing power are considered relevant.
Inflation has a monumental effect on the stock investors who are desperate to multiply their scant and valued capital. When the market runs in the bear phase, inflation accelerates real losses and it also retards real gains during the bull phase. Since stock investment is not immune from the bane of inflation, only long term return, regardless of the market origin, in real terms, should be the only concern of the investor. He can beat the inflation by riding on the perpetual bull. A bull market is always existent somewhere. It has been observed that when the stocks happen to be in the bearish phase of their long cycle, the commodities are found to be in their bullish phase, and vice versa. The commodity markets actually tend to move totally out of phase with stocks.
As with any profession, you must first learn the fundamentals; here we learn some share trading basics. Most people start trading the Australian sharemarket with $2000 but you can start for as little as $500 plus brokerage costs. But before looking into the basics of trading shares you should ask yourself the following questions: What do you want to achieve from your share trading? What level of return do you expect? Do you think this level of return is realistic? Are you prepared to strictly follow rules and systems in your share trading? How much money are you prepared to risk in your share trading activities? Answer these questions as truthfully as you can.
An important basic share trading principle is the amount of time you are willing to spend in the market. Also consider the other influencing factors such as opportunity cost and other interest repayment costs. Also keep in mind that this length of time will vary greatly from person to person and there is no one correct answer. The best length of time to choose will fit your trading personality. Most of the time trading stocks involves a short time frame but there are trading systems which involve a longer time period. (Such traders who trade longer time frames may have a multitude of reasons why they have longer time frames: some may find it more comfortable or others may trade longer time frames to minimise their analysis time) Be mindful that you don’t transform your trading into an investment portfolio where you have let a trade turn sour and you have not followed your planned exit from your trading plan.
Your share trading activities may attract tax implications. If your market trading activities match certain criteria set out by the taxation department, your professional share trading could be seen as a type of “business”. Please seek professional advise from your accountant about tax implications and your share trading.
Keep liquidity in mind when you are trading. You will definitely want liquidity when you trade so you can easily enter and exit trades as you please, as close to your bid or asking price. Most stocks on the sharemarket are liquid, but many are also illiquid. Most liquid stocks are usually in the top 10, 100 or 200 companies of the stockmarket (in order of market capitalisation) and in Australia, these companies would be listed on the ASX100 and ASX200 indices.
Finally, you must accept the fact that you and you alone are responsible for your financial future and your share trading. You control the amount of risk in a trade and any losses must be accounted for as well as have a trading plan strictly followed. The share market doesn’t dictate how much YOU lose, only you decide how much money you are prepared to lose by presetting your stop loss and the amount of risk you are willing to place in every trade you execute. The stop loss level must be determined and set in stone before any trade is initiated. Many formulas and theorems exist for differing trading needs, but most traders use a simple rule called the 2 percent rule.
No Entry Expenses
Online stock market trading or virtual trading is the simplest and easiest way to make money. You simply have to open an account with an online stock broker free of cost. Unlike other businesses, you do not need to invest lots of money to start online trading in stocks. You can start with as little as $3. You have everything to gain, and if unfortunately, you lose, be consoled that the loss is only a fraction of your investment of $3 in the stock market.
Risk free Initiation
The reason for starting with a small investment is that even if you lose your money, you would have gained much in terms of learning the tricks of the trade. Also since there are no major risks involved with such a small investment, you can trade more confidently. Yet, it is important to maintain a cautious approach to deal with the risks and losses.
Step-by-Step Guidance
You can trade in stocks through a stock broker, who with his expertise will guide you regarding your financial decisions. Instead of following his decisions blindly, you should aim at understanding why and how he decided on investing in a particular company. Alternatively, if you are dealing in online stock trading, you can consult your broker’s website and read through the various articles that you find there. This way you will soon be able to grasp the basics of the financial market and understand how research can make a difference to your profit margins.
Stock Trading Tools
Besides providing elementary information and tips to the beginners, your stock broker’s website also provides you with many useful tools for successful trading. Stock brokers, as a rule, employ stock market analysts who continuously research the financial viability and performance of various companies and their stocks so that they are in a better position to design an appropriate investment portfolio for their clients.
You can get access to the detailed examination of the financial performance of the company whose stock you want to trade in—its technical and fundamental analysis, market capital, market capital, performance since its inception, the initial, past and the current market value of the stock, short and long term possibilities, quarterly, half yearly and annual reports, market orders along with all other strong and weak points. You can also get a sector wise report of banks, pharmaceuticals, capital goods, information technology, cement, steel, oil, power, energy and so on. There are reports on national and international markets in context of the stock that you like to trade in. All these details are provided to help you to take enlightened decisions.
Customer Education
You can even learn to analyze the financial environment and the performance of various companies. There are articles and tutorials by experts, which provide you an in-depth understanding of various aspects of stock trading There are also reports about the gainers and losers in the market on a periodical basis.
Tools for Advanced Traders
You can also use the research tools to scan the stock market for profit opportunities. Once you find the symbol of your stock, you get analytical reports and charts about its past and present performance, which can help you decide its future potential. You can also study the latest business news headlines and quotes updated almost by hour on the financial websites. For example, if NASDAQ announces that it has listed five new exchange traded funds-ETFs-sponsored by Barclays Global Investors, you get a news flash instantly on your computer’s monitor.
You can also use another tool called ETF screener, which lists the top Exchange Traded Funds by, say, four major categories. There are category links to view the top 15 ETFs of each category. All you need to do is to click on the symbol to view a detailed quote or trade the ETF.
Stocks can be considered a tool for building wealth, as they are a part of almost every investment portfolio. They represent the ownership of a company and are bought in the form of shares. Shares refer to the stock of a particular company. Your stake in a company depends on how many shares you possess, because these are considered a part of the company’s capital.
The popularity of investing in the stock market is increasing constantly. Today, investment in stocks and shares is not limited to the well to do; even the average middle-class is getting into it in droves. The opening up of markets with advanced trading technologies has made owning shares easy for everyone. However, if you are planning to invest, do not depend on luck to get you returns. Investment in stocks is considered a very risky affair. It requires a high rate of return. You need to use a well thought out strategy and necessary tools to invest in the share market.
The allure of investing in shares and stocks, however, does not mean that every would-be investor has the know-how of this often-slippery market. If you feel that the get-rich-quick theory applies to stocks and shares, then it is a misguided notion, because stocks are not the answer to instant wealth. Just like the real estate market, the share market also involves a lot of risk. Yet, people are often under the misconception that they will get rich instantly if they invest in shares.
You can buy a share in a stock when a company first enlists on the stock market – that is, at flotation or privatization. Alternatively, you can purchase shares once they are in circulation and are traded.
You could go to a stockbroker if you want to buy stocks. Stockbrokers do business with the stock exchange. They hold the shares in an account that is created in the name of the nominee. You can also keep your shares in the form of a paper certificate. Once the buying and selling of shares is over the transaction is made complete through an electronic system. This system is responsible for linking all the banks along with the stockbroker and registrars of the respective companies.
You can invest in international stocks as well. When a company performs trading in a stock market of another country, their stocks are known as International stocks. These stocks are traded like the UK stocks or, for that matter those traded in the Nasdaq in the US. All the stock exchanges in the world work in the same manner.
There is no guarantee when it comes to Investment in stocks but if you are ready to take a big risk then you can expect great returns on your investment. Despite the risk factor this form of investment has outperformed other investment options like bonds or saving accounts. So if you have the right strategy and you make the right moves in the stock market then nothing can stop the money from rolling in.
If you are looking for flexible investment vehicles that you manipulate within your portfolio such as stocks, bonds, futures you should pay close attention to ETF’s. By definition ETF stands for exchange traded fund, an ETF holds assets such as bonds and stocks and its net worth is equivalent to that of the negotiable instrument it holds; an ETF can also be thought of as an investment portfolio that holds stocks and bonds or other negotiable instruments that are traded on a stock exchange which is very similar to the way that stocks are traded.
The main difference between stocks and ETF’s (besides that an ETF is a portfolio of bonds or stocks) is that an exchange traded fund tracks and index hence the reason why they’re called index funds. There are many indexes that can be tracked through ETF’s, an investor may choose to track and index for it to Dow Jones, NASDAQ, a specific industry such as the manufacturing industry where they may choose to track and index of an emerging market, these markets can be in different countries so much like stocks and investor can also buy an ETF which tracks a particular index of an industry which thrives in different countries across the world.
The whole ETF concept has been around for about 15 years and the first to hit the market did it in 1993 and was better known as “spiders” — ETF symbol was SPDRs, this ETF in particular tracked the Standard and Poor’s 500 index of large-company stocks. During the early 1990s when there is investment vehicle was introduced to the market the most popular type of ETF’s were those which track the index of the technology sector because of obvious reasons, today there is a huge variety of ETF’s that operate in different countries and it can be said that the amount of ETF’s its equivalent to the number of industries that are being traded in the stock exchange.
Benefits of ETFs
One of the most obvious benefits when it comes to ETF’s is their low operating costs; let’s illustrate this point, the Vanguard total Stock market VIPER which is an ETF that tracks the index for the entire US stock market carries an annual operating cost of 0.07% of the total assets, that is equivalent of saying that a $10,000 investment would have an annual operating fee of seven dollars.
Another great benefit of dealing with an ETF is that such trading vehicle is structured for tax efficiency this is because an ETF itself doesn’t have to buy or sell securities so this means that there are not any taxable gains to be passed on. And ETF can generate taxable gains but, an exchange traded fund is often sold as a stock will be sold in the stock market, they are not redeemed by the holders so in order for an investor to realize capital gains he would have to sell the shares or trade the ETF in order to reflect changes in the underlying index.
Last (but not least) ETFs are very flexible when they are compared against other investment instrument such as mutual funds, in other words a mutual fund is often priced once and this usually happens at the end of the trading day, ETFs on the other hand can be bought or sold exactly as you would with stocks and similarly to stocks you could also buy on margin (using other people’s money) and you can also sell short when the market conditions are appropriate.