How to Invest in Stock?

Investing in stocks is often efficient thanks to building wealth over time. Learning how to invest wisely and with patience over a lifetime can yield returns that far outpace the most modest income.


Warning: You might have to settle for lesser results if you don't have much time or interest in managing your investments.

What Are Stocks?

Stocks are equity investments that represent legal ownership during a company. You become a part-owner of the company when you purchase shares. Corporations issue stock to raise money, and it comes in two variations: common or preferred. Common stock entitles the stockholder to a proportionate share of a company's profits or losses, while preferred stock comes with a predetermined dividend payment.

Note: People are generally talking about common stocks when they talk about buying stocks.

Making Money Investing in Stocks

You can profit from owning stocks when the share price increases, or from quarterly dividend payments. Investments accumulate over time and can yield a solid return due to compound interest, which allows your interest to begin earning interest.

For example, you might make an initial investment of $1,000 and you plan to add $100 every month for 20 years. You'd end up with $74,457.50 after 20 years, even though you only contributed $25,000 over time, if you see an annual return of 10% interest.2

Benjamin Graham is known as the father of value investing, and he's preached that the real money in investing will have to be made—as most of it has been in the past—not by buying and selling, but from owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value

The Top 5 Benefits of Stock Investing
Stock investment offers plenty of benefits:

1. Takes advantage of a growing economy: because the economy grows, so do corporate earnings. That's because the economic process creates jobs, which creates income, which creates sales. It helps to know the phases of the business cycle—expansion, peak, contraction, and trough.
2. Best way to stay ahead of inflation: Historically, stocks have averaged an annualized return of 10%. That's better than the average annualized inflation rate of 2.9%. It does mean you must have a longer time horizon. That way, you'll buy and hold albeit the worth temporarily drops. 
3. Easy to shop for: The stock exchange makes it easy to buy shares of companies. Once you've set up an account, you can buy stocks in minutes. Some online brokers such as Robinhood let you buy and sell stocks commission-free. 
4. Make money in two ways: Most investors shall buy low then sell high. The first group hopes to require advantage of short-term trends, while the latter expect to ascertain the company's earnings and stock price grow over time. Other investors prefer a regular stream of cash. They purchase stocks of companies that pay dividends. Those companies grow at a moderate rate.
5. Easy to sell: The stock exchange allows you to sell your stock at any time. Since prices are volatile, you run the risk of being forced to take a loss.