V K Vijayakumar

He is known for his articles on capital markets, wealth management, and Indian and global economy. He has presented many papers and delivered many lectures on the capital market in national and international seminars. He has authored four books on economics, presented eight papers in international seminars and 65 papers in national seminars.

Download The Economic Times News App to get Daily Market Updates & Live Business News.

Shares into which ownership of the corporation is divided

This article is about the total shares in a business. For individual units of corporate stock, see Share (finance). For "capital stock" as an input to production, see Physical capital. For the goods and materials a business holds, see Inventory. For other uses, see Stock (disambiguation).

In finance, stock (also capital stock) consists of all of the shares into which ownership of a corporation or company is divided.^[1] (Especially in American English, the word "stocks" is also used to refer to shares.)^[1][2] A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (stockholder) to that fraction of the company's earnings, proceeds from liquidation of assets (after discharge of all senior claims such as secured and unsecured debt),^[3] or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

Stock can be bought and sold privately or on stock exchanges, and such transactions are typically heavily regulated by governments to prevent fraud, protect investors, and benefit the larger economy. The stocks are deposited with the depositories in the electronic format also known as Demat account. As new shares are issued by a company, the ownership and rights of existing shareholders are diluted in return for cash to sustain or grow the business. Companies can also buy back stock, which often lets investors recoup the initial investment plus capital gains from subsequent rises in stock price. Stock options issued by many companies as part of employee compensation do not represent ownership, but represent the right to buy ownership at a future time at a specified price. This would represent a windfall to the employees if the option is exercised when the market price is higher than the promised price, since if they immediately sold the stock they would keep the difference (minus taxes).

Stocks are a function of capitalism, best hard money lenders for first time investors therefore the stock market operates by the price mechanism: a stock cannot be classified as an investment unless it pays a dividend – the standard dividend yield being 2% – otherwise, it must be classified as a speculation (gambling). However, if one decides to reinvest the dividends, it is not speculation, and assuming for ceteris paribus, this will lead to an exponential growth of , where P is the initial investment, r is the yield, m is dividends per year, and t is number of years. A "dividend king" is a how to invest money in share market for beginners in tamil which has had an increasing or constant dividend yield for over 50 successive years.

Shares[edit]

A person who owns a percentage of the stock has the ownership of the corporation proportional to their share. The shares form stock. The stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the existing shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, which is a nominal accounting value used to represent the equity on the balance sheet of the corporation. In other jurisdictions, however, shares of stock may be issued without associated par value.

Shares represent a fraction of ownership in a business. A business may declare different types (or classes) of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a legal document that specifies the number of shares owned by the shareholder, and other specifics of the shares, such as the par value, if any, or the class of the shares.^[4]

In the United Kingdom, Republic of Ireland, South Africa, and Australia, stock can also refer, less commonly, to all kinds of marketable securities.^[5]

Types[edit]

Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.^{[6][7][page needed]} Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually any time after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK).

New equity issue may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. Often, new issues that have not been registered with a securities governing body may be restricted from resale for certain periods of time.

Preferred stock may be hybrid by having the qualities of bonds of fixed returns and common stock voting rights. They also have preference in the payment money makes a difference dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend. In addition, preferred stock usually comes with a letter designation at the end of the security; for example, Berkshire-Hathaway Class "B" shares sell under stock ticker BRK.B, whereas Class "A" shares of ORION DHC, Inc will sell under ticker OODHA until the company drops the "A" creating ticker OODH for its "Common" shares only designation. This extra letter does not mean that any exclusive rights exist for the shareholders but it does let investors know that the shares are considered for such, however, these rights or privileges may change based on the decisions made by the underlying company.

Rule 144 stock[edit]

"Rule 144 Stock" is an American term given to shares of stock subject to SEC Rule 144: Selling Restricted and Control Securities.^[8] Under Rule 144, restricted and controlled securities are acquired in unregistered form. Investors either purchase or take ownership of these securities how to invest money in share market for beginners in tamil private sales (or other means such as via ESOPs or in exchange for seed money) from the issuing company (as in the case with Restricted Securities) or from an affiliate of the issuer (as in the case with Control Securities). Investors wishing to sell these securities are subject to different rules than those selling traditional common or preferred stock. These individuals will only be allowed to liquidate their securities after meeting the specific conditions set forth by SEC Rule 144. Rule 144 allows public re-sale of restricted securities if a number of different conditions are met.

Stock derivatives[edit]

Further information: Equity derivative

A stock derivative is any financial instrument for which the underlying asset is the price of an equity. Futures and options are the main types of derivatives on stocks. The underlying security may how to invest money in share market for beginners in tamil a stock index or an individual firm's stock, e.g, how to invest money in share market for beginners in tamil. single-stock futures.

Stock futures are contracts where the buyer is long, i.e., takes on the obligation to buy on the contract maturity date, and the seller is short, i.e., takes on the obligation to sell. Stock index futures are generally delivered by cash settlement.

A stock option is a class of option, how to invest money in share market for beginners in tamil. Specifically, a call option is the right (not obligation) to buy stock in the future at a fixed price and a put option is the right (not obligation) to sell stock in the future at a fixed price. Thus, the value of a stock option changes in reaction to the underlying stock of which it is a derivative. The most popular accounting for investment in marketable debt and equity securities of valuing stock options is the Black–Scholes model.^[9] Apart from call options granted to employees, most stock options are transferable.

History[edit]

During the Roman Republic, the state contracted (leased) out many of its services to private companies. These government contractors were called publicani, or societas publicanorum as individual companies.^[10] These companies were similar to modern corporations, or joint-stock companies more specifically, in a couple of aspects. They issued shares called partes (for large cooperatives) and particulae which were small shares that acted like today's over-the-counter shares.^[11] Polybius mentions that "almost every citizen" participated in the government leases.^[12] There is also evidence that the price of stocks fluctuated. The Roman orator Cicero speaks of partes illo tempore carissimae, which means "shares that had a very high price at that time".^[13] How to invest in gold etf through icicidirect implies a fluctuation of price and stock market behavior in Rome.

Around 1250 in France at Toulouse, 100 shares of the Société des Moulins du Bazacle, or Bazacle Milling Company were traded at a value that depended on the profitability of the mills the society owned.^[14] As early as 1288, the Swedish mining and forestry products company Stora has documented a stock transfer, in which the Bishop of Västerås acquired a 12.5% interest in the mine (or more specifically, the mountain in which the copper resource was available, the Great Copper Mountain) in exchange for an estate.

The earliest recognized joint-stock company in modern times was the English (later British) East India Company, one of the most notorious joint-stock companies. It was granted an English Royal Charter by Elizabeth I on 31 December 1600, with the intention of favouring trade privileges in India. The Royal Charter effectively gave the newly created Honourable East India Company (HEIC) a 15-year monopoly on all trade in the East Indies.^[15] The company transformed from a commercial trading venture to one that virtually ruled India as it acquired auxiliary governmental and military functions, until its dissolution.

Soon afterwards, in 1602,^[16] the Dutch East India Company issued the first shares that were made tradeable on the Amsterdam Stock Exchange, an invention that enhanced the ability of joint-stock companies to attract capital from investors as they now easily could dispose of their shares.^[17] The Dutch East India Company became the first multinational corporation and the first megacorporation. Between 1602 and 1796 it traded 2.5 million tons of cargo with Asia on 4,785 ships and sent a million Europeans to work in Asia, surpassing all other rivals.

The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritimesuperpower. Before the adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could be undertaken only by governments or by very wealthy individuals or families.

The Dutch stock market of the 17th century included the use of stock futures, stock options, short selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695, and a change in fashion (namely, in headdresses) that unfolded and reverted in time with the market. Edward Stringham also noted that the uses of practices such as short selling continued to occur during this time despite the government passing laws against it. This is unusual because it shows individual parties fulfilling contracts that were not legally enforceable and where the parties involved could incur a loss. Stringham argues that this shows that contracts can be created and enforced without state sanction or, in this case, in spite of laws to the contrary.^[18][19]

Shareholder[edit]

Main article: Shareholder

A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Both private and public traded companies have shareholders.

Shareholders are granted special privileges depending on the class of stock, including the right to vote on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, shareholder's rights to a company's assets are subordinate to the rights of the company's creditors.

Shareholders are one type of stakeholders, who may include anyone who has a direct or indirect equity interest in the business entity or someone with a non-equity interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.

However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, USA, majority shareholders of closely held corporations have a duty not to destroy the value of the shares held by minority shareholders.^[20][21]

The largest shareholders (in terms of percentages of companies owned) are often mutual funds, and, especially, passively managed exchange-traded funds.

Application[edit]

The owners of a private company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use. They can achieve these goals by selling shares in the company to the general public, through a sale on a stock exchange. This process is called an initial public offering, or IPO.

By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company, a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends. The owner may also inherit debt and even litigation.

In the common case of a publicly traded corporation, where there may be thousands of shareholders, it is impractical to have all of them making the daily decisions required to run a company. Thus, the shareholders will use their shares as votes in the election of members of the board of directors of the company.

In a typical case, each share constitutes one vote. Corporations may, however, issue different classes of shares, which may have different voting rights. Owning the majority of the shares allows other shareholders to be out-voted – effective control rests with the majority shareholder (or shareholders acting in concert). In this way the original owners of the company often still have control of the company.

Shareholder rights[edit]

Although ownership of 50% of shares does result in 50% ownership of a company, it does not give the shareholder the right to use a company's building, equipment, materials, or other property. This is because the company is considered a legal person, thus it owns all its assets itself. This is important in areas such as insurance, which must be in the name of the company and not the main shareholder.

In most countries, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. Nonetheless, as Martin Whitman writes:

.it can safely be stated that there does not exist any publicly traded company where management works exclusively in the best interests of OPMI [Outside Passive Minority Investor] stockholders. Instead, there are both "communities of interest" and "conflicts of interest" between stockholders (principal) and management (agent). This conflict is referred to as the principal–agent problem. It would be naive to think that any management would forego management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs.^[22]

Even though the board of directors runs the company, the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Each shareholder typically has a percentage of votes equal to the percentage of shares he or she owns. So as long as the shareholders agree that the management (agent) are performing poorly they can select a new board of directors which can then hire a new management team. In practice, however, genuinely contested board elections are rare. Board candidates are usually nominated by insiders or by the board of the directors themselves, and a considerable amount of stock is held or voted by insiders.

Owning shares does not mean responsibility for liabilities. If a company goes broke and has to default on loans, the shareholders are not liable in any way. However, all money obtained by converting assets into cash will be used to repay loans and other debts first, so that shareholders cannot receive any money unless and until creditors have been paid (often the shareholders end up with nothing).^[23]

Means of financing[edit]

Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing (for example issuing bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).

Trading[edit]

Main article: Stock trader

A stockbroker using multiple screens to stay up to date on trading

In general, the shares of a company may be transferred from shareholders to other parties by sale or other mechanisms, how to invest money in share market for beginners in tamil, unless prohibited. Most jurisdictions have established laws and regulations governing such transfers, particularly if the issuer is a publicly traded entity.

The desire of stockholders to trade their shares has led to the establishment of stock exchanges, organizations which provide marketplaces for trading shares and other derivatives and financial products, how to invest money in share market for beginners in tamil. Today, stock traders are usually represented by a stockbroker who buys and sells shares of a wide range of companies on such exchanges. A company may list its shares on an exchange by meeting and maintaining the listing requirements of a particular stock exchange.

Many large non-U.S companies choose to list on a U.S. exchange as well as an exchange in their home country in order to broaden their investor base. These companies must maintain a block of shares at a bank in the US, typically a certain percentage of their capital. On how to invest money in share market for beginners in tamil basis, the holding bank establishes American depositary shares and issues an American depositary receipt (ADR) for each share a trader acquires. Likewise, many large U.S. companies list their shares at foreign exchanges to raise capital abroad.

Small companies that do not qualify and cannot meet the listing requirements of the major exchanges may be traded over-the-counter (OTC) by an off-exchange mechanism in which trading occurs directly between parties. The major OTC markets in the United States are the electronic quotation systems OTC Bulletin Board (OTCBB) and OTC Markets Group (formerly known as Pink OTC Markets Inc.)^[24] where individual retail investors are also represented by a brokerage firm and the quotation service's requirements for a company to be listed are minimal. Shares of companies in bankruptcy proceedings are usually listed by these quotation services after the stock is delisted from an exchange.

Buying[edit]

There are various methods of buying and financing stocks, the most common being through a stockbroker. Brokerage firms, whether they are a full-service or discount broker, arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange.

There are many different brokerage firms from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full-service or discount broker.

There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.

When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyer's ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the value of stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using a car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8–10% interest, how to invest money in share market for beginners in tamil.

Selling[edit]

Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.

As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction.

After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the how to invest money in share market for beginners in tamil. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.

Short selling[edit]

Short selling consists of an investor immediately selling borrowed shares and then buying them back when their price has gone down (called "covering").^[25] Essentially, such an investor bets^[25] that the price of the shares will drop so that they can be bought back at the lower price and thus returned to the lender at a profit.

Risks of short selling[edit]

The risks of short selling stock are usually higher than those of buying stock. This is because the loss can theoretically be unlimited since the stock's value can theoretically go up indefinitely.^[25]

Stock price fluctuations[edit]

The price of a stock fluctuates fundamentally due to the theory of supply and demand. Like all commodities in the market, the price of a stock is sensitive to demand. However, there are many factors that influence the demand for a particular stock. The fields of fundamental analysis and technical analysis attempt to understand market conditions that lead to price changes, or even predict future price levels. A recent study shows that customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), is significantly correlated to the market value of a stock.^[26] Stock price may be influenced by analysts' business forecast for the company and outlooks for the company's general market segment. Stocks can also fluctuate greatly due to pump and dump scams.

Share price determination[edit]

At any given moment, an equity's price is strictly a result of supply and demand. The supply, commonly referred to as the float, is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and maintain equilibrium. The product of this instantaneous price and the float at any one time is the market capitalization of the entity offering the equity at that point in time.

When prospective buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium.

Thus, the value of a share of a company at any given moment is determined by all investors voting with their money. If more investors want a stock and are willing to pay more, the price will go up. If more investors are selling a stock and there aren't enough buyers, the price will go down.

• Note: "For Nasdaq-listed stocks, the price quote includes information on the bid and ask prices for the stock."^[27]

That does not explain how people decide the maximum price at which they are willing to buy or the minimum at which they are willing to sell. In professional investment circles the efficient market hypothesis (EMH) continues to be popular, although how to invest money in share market for beginners in tamil theory is widely discredited in academic and professional circles, how to invest money in share market for beginners in tamil. Briefly, EMH says that investing is overall (weighted by the standard deviation) rational; that the price of a stock at any given moment represents a rational evaluation of the known information that might bear on the future value of the company; and that share prices of equities are priced efficiently, which is to say that they represent accurately the expected value of the stock, as best it can be known at a given moment. In other words, prices are the result of discounting expected future cash flows.

The EMH model, if true, has at least two interesting consequences. First, because financial risk is presumed to require at least a small premium on expected value, the return on equity can be expected to be slightly greater than that available from non-equity investments: if not, the same rational calculations would lead equity investors to shift to these safer non-equity investments that could be expected to give the same or better return at lower risk. Second, because the price of a share at every given moment is an "efficient" reflection of expected value, then—relative to the curve of expected return—prices will tend to follow a random walk, determined by the emergence of information (randomly) over time. Professional equity investors therefore immerse themselves in the flow of fundamental information, seeking to gain an advantage over their competitors (mainly other professional investors) by more intelligently interpreting the emerging flow of information (news).

The EMH model does not seem to give a complete description of the process of equity price determination. For example, stock markets are more volatile than EMH would imply. In recent years it has come to be accepted that the share markets are not perfectly efficient, perhaps especially in emerging markets or other markets that are not dominated by well-informed professional investors.

Another theory of share price determination comes from the field of Behavioral Finance. According to Behavioral Finance, humans often make irrational decisions—particularly, related to the buying and selling of securities—based upon fears and misperceptions of outcomes. The irrational trading of securities can often create securities prices which vary from rational, fundamental price valuations. For instance, during the technology bubble of the late 1990s (which was followed by the dot-com bust of 2000–2002), technology companies were often bid beyond any rational fundamental value because of what is commonly known as the "greater fool theory". The "greater fool theory" holds that, because the predominant method of realizing returns in equity is from the sale to another investor, one should select securities that they believe that someone else will value at a higher level at some point in the future, without regard to the basis for that other party's willingness to pay a higher price. Thus, even a rational investor may bank on others' irrationality.

Arbitrage trading[edit]

When companies raise capital by offering stock on more than one exchange, the potential exists for discrepancies in the valuation of shares on different exchanges. A keen investor with access to information about such discrepancies may invest in expectation of their eventual convergence, known as arbitrage trading. Electronic trading has resulted in extensive price transparency (efficient-market hypothesis) and these discrepancies, if they exist, are short-lived and quickly equilibrated.

See also[edit]

References[edit]

Further reading[edit]

• Graham, how to invest money in share market for beginners in tamil, Benjamin; Jason Zweig (8 July 2003) [1949]. The Intelligent Investor. Warren E. How to invest money in share market for beginners in tamil (collaborator) (2003 ed.). HarperCollins. front cover. ISBN .
• Graham, B. and Dodd, D. and Dodd, D.L.F. (1934). Security Analysis: The Classic 1934 Edition. McGraw-Hill Education, how to invest money in share market for beginners in tamil. ISBN . LCCN 34023635.: CS1 maint: multiple names: authors list (link)
• Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!, by Robert Kiyosaki and Sharon Lechter. Warner Business Books, 2000. ISBN 0-446-67745-0
• Clason, George (2015). The Richest Man in Babylon: Original 1926 Edition. CreateSpace Independent Publishing Platform. ISBN .
• Bogle, John Bogle (2007). The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. John Wiley and Sons. pp. 216, how to invest money in share market for beginners in tamil. ISBN .
• Buffett, W. and Cunningham, L.A. (2009). The Essays of Warren Buffett: Lessons for Investors and Managers. John Wiley & Sons (Asia) Pte Limited. ISBN .: CS1 maint: multiple names: authors list (link)
• Stanley, Thomas J. and Danko, W.D. (1998). The Millionaire Next Door. Gallery Books. ISBN . LCCN 98046515.: CS1 maint: multiple names: authors list (link)
• Soros, George (1988). The Alchemy of Finance: Reading the Mind of the Market. A Touchstone book. Simon & Schuster. ISBN . LCCN 87004745.
• Fisher, Philip Arthur (1996). Common Stocks and Uncommon How to invest money in share market for beginners in tamil and Other Writings. Wiley Investment Classics. Wiley. ISBN . LCCN 95051449.

External links[edit]

Investing in the stock market is one of the best ways to build wealth over the long term, but it can be complicated and stressful to get started if you’ve never invested before.

The good news is that investing is more accessible than ever. Years ago, you had to work with stockbrokers who charged heavy fees and might not have your best interest in mind. Today, anyone can start investing with just a few dollars and there is a wealth of investing information and advice on the Internet.

Tips for Stock Market Investing

When some people think of investing and the stock market in particular, they think of it like a casino or a get-rich-quick scheme. Although there are ways that you can invest to make large amounts of money in short amounts of time, they’re also incredibly risky.

Most people who invest don’t use these strategies. Instead, they use time-tested techniques like building diverse portfolios and low-cost investing methods to grow their nest egg over the years.

Motley Fool Stock Advisor recommendations have an average return of 618%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now

If you’re just getting started with investing, these tips can help you build your first portfolio.

1. Handle the Basics First

Before you start investing, you should cover the basics of your everyday finances. That means taking steps like building an emergency fund and paying off high-interest debt.

Many financial experts recommend that people maintain anywhere between three and six months’ expenses in an emergency fund (we recommend a Savings Builder account at CIT Stocks to invest in uk. That means that if you spend $3,000 per month, you should have somewhere between $9,000 and $18,000 in savings. That’s usually enough to cover unexpected expenses or to weather a period of reduced income, such as unemployment.

The last thing that you want is to have to sell your investments when they’re low to cover living expenses, so a healthy emergency fund is important.

Getting rid of high-interest debt is also essential. For example, if you have debt that charges 12% interest, making extra payments toward that debt is equivalent to investing that money and earning a 12% annual return.

The S&P 500, an index of large American stocks, has provided an average return of 9.8% over the past century or so. Depending on your risk tolerance, you should aim to pay down any debt charging an interest rate near or higher than that. A common rule of thumb is to pay down debt charging more than roughly 6% interest before investing.

Of course, there are exceptions to this rule, such as investing enough to get your employer’s 401(k) match, but making sure you pay down costly debt and have emergency savings before you start investing are important.

Pro tip: David and Tom Gardener are two of the best stock pickers. Their Motley Fool Stock Advisor recommendations have increased 563% compared to just 131.1% for the S&P 500. If you would have invested in Netflix when they first recommended the company, your investment would be up more than 21,000%. Learn more about Motley Fool Stock Advisor.

2. Know Your Goals and Timeline

Before you start investing, you need to know why you’re investing. Different goals necessitate different investing strategies.

For example, someone who wants to preserve their capital and draw some income from it may opt for a more conservative portfolio, focusing on less-risky companies or investing in bonds.

Someone who wants to grow their nest egg over the long term, perhaps to build retirement savings, will likely want to invest in stocks that have higher return potential.

Your timeline for investing also plays a significant role in your investment strategy. If you’re a young professional and saving for retirement, you can handle the volatility that comes with investing in high-risk, high-reward stocks. As long as you earn strong, positive returns in the long term, it’s not a huge problem if your investments lose 50% of their value in a bad year.

Someone who is saving for a near-term goal, such as paying for a teenage child’s college, will want to construct a less volatile portfolio. Instead of investing in small, risky companies, they might invest in blue-chip stocks, bonds, or even CDs.

In general, investing should be a long-term endeavor. There are three primary factors that influence how much your portfolio will grow:

• The amount you invest
• The annual return of your portfolio
• How long you leave your money invested

Building a diversified portfolio can help reduce your risk and keep your portfolio growing over the years. That means that the longer you keep your money invested, the larger your investment portfolio will grow.

3. Know Your Risk Tolerance

Another factor that will impact your portfolio is your risk tolerance. Even if you’re investing for the long term and want to increase your portfolio’s value over time, your personal how to invest money in share market for beginners in tamil tolerance may lead you to less risky investments.

Someone with a high risk tolerance might be willing to build a portfolio composed solely of stocks if they have a long time horizon. People who don’t feel comfortable with that risk might want to hold a mixture of stocks and bonds even if their investment goals are long-term.

4. Choose a Brokerage

There are dozens of different companies that offer brokerage accounts to how to invest money in share market for beginners in tamil who want to start investing, how to invest money in share market for beginners in tamil. Choosing a brokerage is an important part of starting to invest.

Each brokerage offers different types of accounts, how to invest money in share market for beginners in tamil, features, and fees, so you want to choose one that fits with your needs.

For example, people who want to save for retirement want to work with a brokerage company that offers IRAs. People who are saving for a child’s education should find a brokerage that lets them invest in 529 plans.

How you plan to invest also affects the brokerage you choose. Some major brokerages like Fidelity, Schwab, and Vanguard have their own line of mutual funds and don’t charge commissions when investors purchase their funds. If you plan to invest mostly in mutual funds and exchange-traded funds (ETFs), using the brokerage that also manages those funds can be a good idea.

If you plan to invest primarily in individual stocks, finding a brokerage with its own line of mutual funds is less important. Instead, focus on avoiding costs like account fees and trade commissions so you don’t pay a huge amount to build your desired portfolio.

Pro tip: If you have several investment goals, consider opening an account with Acorns. With Acorns Invest, you’ll be able to invest your spare change in a diversified portfolio. You can also make recurring deposits on your schedule. If you want to invest for retirement, Acorns Later will help you set up an IRA account. Do you have kids? Acorns Early is an investment account for kids that can be opened in just how to invest money in share market for beginners in tamil minutes.

5. Do Your Due Diligence

Whether you plan to buy individual stocks on the stock market or invest in bonds, mutual funds, or almost any other security, doing your due diligence is essential. That means researching every investment before you buy it.

Publicly-traded companies are required to submit certain paperwork to the SEC each year. These documents include information about the company’s revenues, expenses, account balances, and more. You should read these documents carefully and make sure you understand what they contain before investing. For example, if a company has high debt, low cash balances, and falling revenues, you can find that out in the company’s annual report. Given the high risk of such a company, you might not want to buy shares unless you’re willing to accept that risk.

Some popular metrics that investors look at when researching stocks include price-to-earnings (P/E) ratios, earnings per share (EPS), and return on equity (ROE). These metrics can help you compare different businesses that you might invest in.

Another strategy that some investors use when researching companies is technical analysis, how to invest money in share market for beginners in tamil. Technical analysts look at stock price charts and try to identify patterns, then relate those patterns to how the share’s price will change in the future.

For example, technical analysts believe that a stock’s daily price passing above or below the price’s long-term moving average indicates future gains or losses for the stock, presenting a good buying or selling opportunity.

Regardless of the strategy that you use to research stocks, how to invest money in share market for beginners in tamil, having a strategy, knowing how to implement it, and taking the time to do your due diligence are essential.

Pro tip: If you’re looking for a tool to help you research potential investments, sign up for Atom Finance. It’s free, and it gives you access to real-time price quotes, professional-grade news and analysis on companies, and it integrates seamlessly with your brokerage account.

6. Build a Diverse Portfolio

One of the most important things to do when building a portfolio is to diversify. You don’t want to put all of your eggs into one basket because a single hole in that basket could leave you with an empty portfolio.

For example, if you put 100% of your money into Enron stock, you’d have been left with nothing when the company went under. If you put 10% of your money into each of 10 different companies, even a collapse as bad as Enron’s would only cost 10% of your portfolio. Diversifying further reduces the risk even more.

Diversify on Your Own

The most basic strategy for diversifying is buying shares in multiple companies, but there are more advanced strategies that you can use.

For example, some people aim to split their portfolio between stocks with different market capitalizations. Market capitalization measures the total value of all of a company’s shares. Large-cap companies — those worth the most — tend to have lower returns but lower volatility than small-cap companies. Holding a mixture of companies of different sizes lets you get exposure to the high-risk, high-reward of small-caps while getting some of the benefit of lower volatility large-caps.

Others diversify their portfolio by holding different types of investments. For example, you might build a portfolio that is 70% stocks and 30% bonds. Stock prices can be highly volatile but bonds tend to be more steady. A mix of stocks and bonds lets you get most of the benefit from strong markets, but reduces your losses during downturns.

Diversify with Mutual Funds

One of the easiest ways to build a diversified portfolio is to invest in mutual funds. Mutual funds pool money from multiple investors, then use that money to buy securities. A single mutual fund can hold hundreds or thousands of different stocks.

Investors can buy shares in the one mutual fund to get exposure to all of the stocks in that fund’s portfolio. Instead of having to keep track of 10, 20, or more companies that they hold in their portfolio, an individual investor only has to keep track of the mutual fund they invest in.

Mutual funds can how to invest money in share market for beginners in tamil all sorts of different investing strategies. Some aim to track specific stock indexes, like the S&P 500 or the Russell 2000. Others hold shares in companies that operate in a specific industry, like health care or utilities. Some use an active trading strategy where the fund’s managers try to find good opportunities to buy and sell shares to beat the market.

Some mutual funds even hold a mix of stocks and bonds, or adjust their holding over time to reduce risk as time passes closer to a target date.

Mutual funds do charge a fee for their convenience and management services, but passively-managed funds tend to be quite inexpensive and the simplicity, diversification, how to invest money in share market for beginners in tamil, and peace of mind they offer is worth the small cost.

Diversify with Robo-Advisors

One service that has grown popular recently is robo-advisory.

Robo-advisors are programs that invest on your behalf. When you sign up for a robo-advisory service through a company like Acorns, you’ll usually have to answer some questions how to invest money in share market for beginners in tamil your investing goals, risk tolerance, and financial situation. The program uses that information to construct a portfolio for you.

Once the robo-advisor builds a portfolio, all you have to do is deposit and withdraw funds as needed. The software handles all of the day-to-day for you, such as buying and selling shares or rebalancing your portfolio if one asset class outperforms or underperforms the rest of your portfolio.

Robo-advisors also offer other perks. A common one is tax-loss harvesting, which sells shares for a loss and reinvests the money in similar securities. This lets you deduct the paper losses from your income when filing your tax return, reducing your taxable income in the short term. Deferring those taxes to later can help increase the size of your portfolio.

Robo-advisors charge a fee for their service, typically as a percentage of your invested assets. Many claim how to invest money in share market for beginners in tamil their benefits lead to higher returns that offset the fee, but it’s up to each individual to decide whether robo-advisors are right for you.

Pro tip: When the stock market is as volatile as it’s been, being diversified is crucial. Companies like Masterworks give you the ability to invest outside of the stock market. With Masterworks, you can invest in shares of fine art from some of the world’s most renowned artists.

7. Invest Logically, Not Emotionally

Whether you choose to invest on your own or to let a mutual fund or robo-advisor manage your investments, it’s important to make sure you don’t invest emotionally.

It can be easy to let your emotions and sentimental attachments to certain companies or brands make you want to buy their shares, how to invest money in share market for beginners in tamil. However, liking a company isn’t the best reason to buy its stocks. You should base your investments on a sound strategy and research.

Similarly, it can be incredibly stressful to watch your portfolio’s value plummet as the stock market drops, to the point that you want to pull your money out of the market.

History shows that the most important part of investing is keeping your money in the market. Even the worst market timer in the world outperforms an investor who regularly moves money in and out of the market.

8. Avoid Leverage

For new investors, it can be very tempting to use leverage — borrowed money — to invest, especially if you don’t have much money to start investing. This is doubly true because many brokers have made it easier to access leverage than ever before.

A 10% gain on a $100 investment is just $10. If you borrowed another $900 to invest, bringing your total balance to $1,000, that same 10% gain would be worth $100, which makes the gain much more exciting.

The important point to remember is that leverage can be incredibly dangerous. Investing is never a sure thing. You could lose some or all of the money you invest, even if you buy shares in an incredibly stable business.

If you invest $100 and your stock loses 25%, you’ve lost $25 but still have the other $75. If you borrowed $900 to increase your investment to $1,000, a 25% loss means losing $250 — more than twice the amount of money you had to invest to begin with. If that happens, you have to sell the shares at a loss and find a way to repay the remaining $150 of debt that you now owe.

Advanced investors sometimes use leverage when executing specific investing strategies, but for most individuals, and especially beginners, it’s usually best to avoid leverage.

Final Word

Investing in the stock market can be exciting and is an important part of building wealth. Making sure you understand how to invest and research potential investments before starting is important.

You should also take the time to consider different investment accounts. While investing in a 401(k) or an IRA is good, many people could also benefit from a taxable brokerage account. Understanding the different types of accounts you can use can help you make the most of each dollar you invest.

Have you invested in the stock market before? What tools do you use to research investments?

Sign Up