How Does Your Money Grow In The Stock Market?
Making money is the foundation of every investment that people engage in. There are many investment options available in the market, and the stock market is one of them. The stock market may be very risky but if done correctly, one can get great profits from it. To make the stock market a worthwhile investment, you need to have the patience, skills and the knowledge of how the business operates.
How The Money Grows
Everyone who invests in the stock market wants to know how the money grows. Your money in the stock market grows in two major ways;
1. Increase In Stock Value
Through the increase in your stock value; the stock value is usually determined by the capital appreciation. The capital appreciation is the rise in value of a stock based on the rising market price. The capital appreciation occurs when the original capital invested in the stock has increased in value. Even if the stock value has increased you cannot earn from it unless you sell the shares. When the company does not perform as expected because of the certain factors, the stock price goes down, that is the reason why you need to sell the stock while the stock value is still high.
2. Dividends
The other major investment returns is the dividends paid by the company to their shareholders. The dividends are usually calculated in terms of the company’s revenues. The dividends are usually paid in two forms; the cash or stock dividend. The cash dividends represent the earning declared by the company per stock. Stock dividend on the other hand is the additional stocks that are given to the shareholders free of charge. You can sell the shares at any time after the stocks have been issued. You can earn the dividends quarterly, semi-annually or annually. The dividends can be calculated in a fixed rate or variable rates.
Tips Of Growing Your Money In Stock Market
If you have the skills and the knowledge of the stock market, you can make money from the investment. Below are tips that you can use to grow your money in the stock market.
Choose The Right Strategy
The investing strategy you use in the stock market will determine how much growth you get from the stock market. There are different strategies that you can use to invest in the stock market. There is the buy and hold strategy; this strategy involves you buying stocks and holding them to sell them when the market value increases. Using this strategy will give you high returns from your investment. The other strategy is the market timing strategy that involves predicting the market and how the stocks will trade in the future. It is very risky to use this kind of strategy as there are other unpredictable factors that affect the stock value. Buying low and selling high is another strategy that you may use to grow you money. This strategy uses the supply and demand concept that states; when the demand for a certain stock grows, the supply that is selling of the stock will go high and when the demand (buying) of the stock the supply decreases the supply goes down.
Patience
When it comes to stock market patience, it is a very important virtue to have. This is because it takes time to make a worthwhile profit from your investment in a short period of time. You will have to exercise patience when you lose your investment. The probability of losing money in the stock market is high because the market is unpredictable. So you have to be ready to cut your losses when you lose money.
Timing
The timing on when to buy and sell your stocks may influence how your stock appreciates. There are certain times when you buy the stocks you won’t get any profit. The perfect time to buy or sell your stocks is during recessions. When the market is experiencing recessions, the value of the stock is usually down hence you can buy the stock at this time at a bargain and watch it grow. The other perfect time for buying or selling is when a new company releases its shares. The new companies usually sell their stock at a low price.
The Factors That Affect The Stock Value
Before you can understand how your money grows in the stock market, you have to understand the factors that influence the value of the prices. There are internal and external factors. The internal factors are from within the company and they directly affect the value of the stock. The internal factors include the management, new product or service, signing of new contracts etc. The external factors are factors that can affect the prices of the stocks directly or indirectly. The external factors include news such as, war, terrorism, foreign exchange, inflation and deflation and interest rates.