Investing in shares is one of the most popular forms of capital investment. They can provide higher returns compared to traditional financial instruments such as bank deposits or bonds. Nevertheless, investing in the stock market involves risk, so it is important to understand where and how to invest in stocks.
What are stocks?
Stocks are primarily securities. They determine the investor’s share in the share capital of a joint-stock company. Their possession gives the shareholder the right to participate in the company’s profits in the form of dividends and the right to vote at the general meeting of shareholders. Investors buy stocks in the hope that their value will increase in the future, allowing them to sell for a profit.
Stocks fall into two main categories:
- Common shares: they give you the right to vote at general meetings and share in profits in the form of dividends. Common stock prices can be highly volatile, giving you the opportunity to make big profits but also losses.
- Preference shares: they give the right to a fixed dividend and priority in the event of liquidation of the company. They usually do not give the right to vote.
Benefits and risks of investing in stocks
Investing in stocks can provide higher returns than more conservative forms of investment, such as bonds or bank deposits. They can be an important part of a diversified investment portfolio, which allows you to reduce risk.
Investors can receive regular dividends from certain companies, which is a form of passive income. By investing in shares, they also gain the opportunity to participate in the company’s success and the growth of the company’s value.
When it comes to risks, it is worth noting that the stock market is highly volatile, which means that the value of investments can change quickly, which involves the risk of capital loss.
Each company has its own specific risks, such as management problems, financial problems or regulatory changes. Investments in shares are not covered by any capital return guarantee scheme.
Where to invest in stocks?
The most popular place to invest in stocks is stock exchanges. The Warsaw Stock Exchange is the main stock exchange in Poland. It was founded on April 16, 1991, a few months after the political transformation of the country from a centrally planned economy to a market economy.
How to start investing in stocks?
The first step in investing in stocks is to understand the basic principles of how financial markets work. It is important to learn concepts such as dividends, stock market index, market capitalization or financial indicators. This can be done by reading books on investing, as well as participating in online courses on finance. It is also worth following financial news and market reports.
The next step is to choose a broker that will allow you to buy and sell shares. Here you need to pay attention to the following aspects:
- transaction costs: commissions on the purchase and sale of shares,
- trading platform: intuitiveness and functionality of the platform,
- market access: the range of available markets and financial instruments;
- Customer service: the quality and speed of response to investor inquiries.
Once you have chosen a broker, you will need to open an investment account, which usually requires you to fill out an online form and provide identification documents.
Once you have chosen a broker, you will need to open an investment account, which usually requires you to fill out an online form and provide identification documents.
Every investor should have clearly defined investment goals. It is important to determine how long the investor plans to hold the stock (short-term vs. long-term). It is also worth determining the level of risk. Investments can be more aggressive or more conservative.
It is also worth defining an investment strategy, e.g. value investing (searching for undervalued companies) or a growth strategy (investing in dynamically developing companies).
