HOW DOES THE STOCK MARKET WORK? (PART II)

Stock market

Now that you know the very basics of the stock market like what is a share, what is a stock market, let’s take a step further, and understand how you can get started right away.

You need to open an account!

You can’t go to the stock market and buy and sell shares. You can only transact shares of listed companies through a broker. 

So, the first step to start investing is to open an account known as a Demat Account and a Trading Account.

DEMAT ACCOUNT: It is similar to a savings account where you deposit or withdraw money at your will (buy or sell your shares, in case of Demat account). Shares get credited (deposited) to your Demat account when you buy them, and debited (removed) from your account when you sell them. There is no need to maintain any minimum balance in your Demat account. 

TRADING ACCOUNT: Many people get confused between the Demat account and trading account. To make it clear, the orders to buy or sell are placed through the trading account and after the order is executed, the shares are deposited into your Demat account which stores it until you wish to sell it. So, to invest in the stock market, a trading account and Demat account is a must!

NOTE: You don’t need to open these accounts separately; there are many brokers that help you with the same.

Check out my blog “HOW TO CHOOSE THE BEST DEMAT AND TRADING ACCOUNT FOR YOU?

Stock Market Crash is the best!

Well, you might be thinking whether I have gone mad or whether I have written it by mistake. NO! This is the truth. 

A stock market crash is the best time for long term investors. Why? Because crash means the prices go very low. 

This is the time where you can pick up quality stocks and look for great companies at a very very low price.

It is similar to the feeling when we hear that some shop is giving 50-60% discount. Many people fear during crash or recession and take out their money whereas smart and intelligent investors put money. 

You can understand this by the quote by Warren Buffet: “Be fearful when everyone is greedy and greedy when everyone is fearful.” 

You have to be patient and wait until the market goes down or crashes to get wonderful opportunities.

ETFs to the rescue!

Investing in stocks means you will have to devote time to find great companies at reasonable prices. Do you think that you don’t have enough time to devote to the stock market? 

Then you have the option of ETFs. The full form of ETF is the Exchange Traded Fund. Basically, when you invest in an ETF, you are investing in the entire stock market instead of choosing individual companies. 

Investing money systematically in ETFs can result in a more than average return on your investments over the long term.

There are many companies that offer ETFs like Vanguard, Nippon India, Schwab, iShares, etc.

Stock Market Historical Returns

As you can notice from the above charts, stock markets have given great returns over the years. Thus, ETFs are considered to be safe investments for beginners. 

NOTE: There are sector-specific ETFs too. For example, there are Bank Sector ETFs, Real Estate ETFs, etc. which gives the total returns on the entire sector.

These are just a few of the ETFs available. You can select from a large number of ETFs. ETFs are a great way to get started. Even if you have been investing for a long time, you should consider investing a portion of your money in ETFs.

Another advantage of ETFs is that you get to be a part of a lot of companies at a very low cost because many company’s stocks are very costly for an individual investor to buy. ETFs are affordable for individual investors like you and me.

A single share of Berkshire Hathaway Stock costs 3, 18,504 USD, and MRF Tyres share cost Rs. 58,148.

Check out my blog “MARKET CAPITALISATION 101” to know what Small Cap, Mid Cap, and Large Cap Companies are.

CONCLUSION:

Now, you are good to start in stock markets and create a new income stream because simply keeping your money in a savings account won’t make you rich

In fact, you lose money by keeping your whole money in the bank because of inflation. ETFs are a great way for beginners. 

If you want to learn how to pick individual stocks by yourself, stay tuned with me. We will look at how to look for potential great stocks by ourselves. 

Just be willing to learn. You don’t need to believe in the news or ask friends because most of the time you will lose money doing so.

Related Blogs

Quick Inquire

Pulse Project