Things to Know Before Considering Investing in Stocks

The stock market has always been the most popular destination for aspiring investors. Even the experienced investors are mainly focused on stocks due to their benefits and their potential for yielding a substantial return on investment (ROI). But what does investing in stocks really mean? Simply put, by purchasing a share of some company’s stocks, you’re purchasing a small percentage of their entire assets. You can sell or buy more stocks when the price is right or hold on to them, in order to enjoy the income from dividends.

Either way, stock investments are a good opportunity to gain profits from the money you have saved up and currently have no need for. However, even though the stock market is highly regulated, it’s important to understand that every investment is a risk. In other words, stock prices are evaluated based on a company’s performance. If you don’t know what you’re doing, you might lose your entire investment before you even realize your own mistake. With that in mind, here are a few things to know before considering investing in stocks.

Consider diversification

As mentioned before, every investment is a risk, especially if you focus only on a single investment method, such as stocks. Investors suggest that by diversifying your investment portfolio, you can minimize the risk of losses. For example, if you suffer a loss from stock price decrease, you can balance it out from other investment assets.

Diversification means investing in various stocks as well as ETFs (Exchange-Traded Funds), bonds and mutual funds or investing in alternative methods, such as gold, real estate and so on. However, if you want to stick to stocks, you should know that you have options available to you that will help hedge risks and insure stock losses. These options are also called stock options, specifically, call and put options. Options are contracts between two parties on the stock market, so it’s advised that you do not engage in such activities without consulting a lawyer first.

Consider taxes

Taxation laws should always be monitored by investors. Taxes can influence your investment decisions in many ways. For example, after the “Tax Cuts and Jobs Act” has been signed in the U.S., the taxes for large companies went down from 28% to 21%. The same act affected small companies reducing their taxation from 32% to 21% as well. This change made small cap stocks a good investment opportunity. However, it’s important not to solely focus on how taxes affect stock prices but how they affect your gains as well.

For example, if you receive dividend income from your stock investments, you must pay income tax that is oftentimes 15% but it’s subject to change. In addition, taxes affect selling stocks for a profit or loss. If you hold on to your stock for more than a year, for example, your incomes are taxed at a long-term capital gains tax rate. That’s why it’s important to consult with an advisor, in order to understand at which capital gains tax rate your incomes or losses are taxed.

Understand the rules and regulations

The stock market is highly regulated, which means any wrongdoings or misconduct won’t go unpunished. The stock market is regulated by the Securities and Exchange Commission (SEC) in the U.S. SEC is a government agency whose task is overseeing and enforcing rules and regulations regarding the stock market laws. Each country has their own government agency representative to help regulate the market, such as the FCA (Financial Conduct Authority) in the U.K. or the Australian Securities and Investment Commission (ASIC) in Australia.

The SEC is also in charge of publishing mandatory financial disclosures regarding corporations. Moreover, they investigate criminal behavior such as insider trading, spreading of false information, accounting frauds, manipulation of the market and so on. That being said, it’s important to familiarize yourself with any laws, rules and regulations regarding the stock exchange in your country of origin, in order to avoid misunderstandings or inconveniences.

Be mindful of the influence

Investors are prone to following what the others are doing, especially new investors on the stock market. The fact of the matter is that each investor has a unique strategy they’re following. That means that you shouldn’t copy what others are doing or where they’re placing their investments. For example, following the trends from newsletters or investing where everyone else is may mislead you to make a mistake. Instead, try to follow the accuracy of stock prices.

As a matter of fact, stocks have actual value but they oftentimes vary in accuracy. As mentioned before, stocks are evaluated based on a company’s performance on the market and prices are bound to rise or drop based on estimates and future projections of that company’s performance. However, at any moment, stocks are worth the present value of the future cash flow their holders will receive. Therefore, trade based only on actionable information you can obtain, instead of risking your investment based on a hunch.

 

The stock market presents investors with the opportunity to maximize their ROI for long-term investments. However, the stock market holds a significant risk, especially for those that are unfamiliar with how the market works. That’s why it’s important to consider important factors before you start investing in stocks.

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Is Investing in Gold a Good Idea in 2018?

Since the dawn of time, people have kept their assets in precious metals. Sure, gold and silver were also a currency, yet, even when this was not the case, the appeal of gold was widely accepted. Nowadays, with so many other investment options (foreign currencies, stocks and cryptocurrencies), it may seem as if investing in gold may not be such a good idea. This notion is further supported by the fact that gold is currently on a slight decline. However, where some see a negative trend to stay away from, others see an opportunity to buy cheap. With this in mind and without further ado, here’s why investing in gold might still be a good idea in 2018.

Diversifying your portfolio

One of the things that a lot of people know is the fact that the price of gold skyrockets in the state of crisis. Because of this, investing in gold might be a perfect way to diversify your portfolio. According to some estimates, it is recommended to keep at least 20 to 30 percent of your assets in gold and silver, while 10 percent is considered to be the bare minimum. The way in which this works is quite simple. Even in the moments of financial crisis, some people have a surplus of capital that they intend to invest.

Seeing as how the value of most stocks seems quite volatile in those moments, they are more likely to invest in gold. After all, it is only natural for people in these situations to show more faith in commodity than in currency, especially due to the fact that most global currencies are no longer backed by gold. As the demand for gold increases, its price skyrockets. Nevertheless, this is something you need to think about in time, which is why it is usually smart to buy when the price is on a decline.

Savings, wealth or investment

Another thing you need to understand is that gold is not only efficient as an investment but also as a way of saving your assets or wealth. While some may find this trend outdated, buying gold coins allows you to place them in your own safe, without having to rely on a third-party. In an era of cryptocurrencies and stocks, where all your assets are in digital form, you can go to bed one day as a wealthy man and wake up the next as a pauper.

Even in the worst-case scenario, where the gold that you’ve invested in loses all its value, you still have it in physical form. This means that all you have to do is sit on top of it for a while and wait for its value to bounce back. Unlike companies whose stocks you buy, gold is not here for years and decades but for millennia. During this period of time, it managed to maintain hard value, which makes it into one of the most consistent wealth trends in the history.

The issue of jewelry demand

One of the things that affect the price of gold the most is the global jewelry market. In fact, one of the reasons for this decline in price is the fact that the jewelry demand is currently down in China. China and India together make up 60 percent of the global jewelry demand, however, with the impending trade war between the U.S. and China, a lot of things got a bit more complex.

Namely, one of the direct results was the loss of Chinese consumer confidence. To make matters even worse, last year, there was a cash crisis in India, where the government prohibited the use of large-denomination bills. Needless to say, jewelry was one of the commodities that were hit by this the most. Nevertheless, it isn’t unrealistic to expect that the jewelry market will recover from this in the nearest future.

Lawsuit proof

Another thing you need to understand is the fact that most lawsuit rulings and settlement offers work on a basis of your overall assets worth. The great thing about gold is the fact that no one can really know how much gold you actually have. Sure, someone determined can look for your previous purchases but most (if not all) gold retailers keep this information confidential. Aside from this, you can leave your gold in a bank vault, lock it in your bedroom safe, bury it in your backyard or display it in the living room. You can even do all of these things at the same time, which makes it virtually impossible for anyone else to know just how much gold you have.

Incredibly portable

One more thing you need to keep in mind is the issue of practicality and portability. In the past, we stated that gold can be left for safekeeping in a vault or on a shelf. However, a lot of people have no idea just how much space gold takes up. This is hard to precisely pinpoint, yet a bullion that is a size of a VHS tape can be as expensive as $200,000. This means that you could literally take all your assets in a briefcase to another country. Sure, one may argue that it’s easier to do this in a bank, yet, this way, it’s much harder to get your hands on the same amount of cash. In the ideal-case scenario, you would have to give your bank a 72-hour notice, which doesn’t sound that bad, unless it’s a situation in which every minute counts.

A legacy

In one of the previous sections, we mentioned that the price of gold is bound to bounce back, however, there’s no guarantee that that will happen in the next year or even next several years (while it is quite likely). On the other hand, for those who bought gold to protect their assets, this shouldn’t pose a significant problem. All in all, you can pass on all your gold to your children and your children’s children (which is something that a lot of people do). Sure, this same amount of gold might be worth more or less but its sheer quantity will remain unchanged.

Conclusion

At the end of the day, from this standpoint, it seems inevitable that 2018 and 2019 will be much better for gold investors than 2017, however, even if this wasn’t the case, buying gold still wouldn’t be a missed investment. All in all, this is a trend that is definitely worth your consideration.