Financial education is a never ending process and it begins with the basics. Understanding how markets work starts with you having an interest and then identifying credible resources that can shed light on the facts.
Investing is a complex and difficult task. To understand this vast topic of investing you need to break it down into its component bits and pieces. For someone just entering this domain, the best place to start is with simple terminology. What is the stock market and for that matter what is a stock?
Once you comprehend the basic concept that a share of stock is a percentage of ownership in a company you can move on to more important matters. For instance, what is a stock worth? To oversimplify, the value of a company depends on how much money it makes today, how much it will make in the future and the net value of the assets it holds. A similar statement can be said about other asset classes such as bonds and commodities.
Understanding values and why stocks move is a lifetime of study. In the short run, the stock market acts like a spoiled child. One day it throws a tantrum and values stocks much higher or lower than their true value for emotional reasons. These erratic movements can be contributed to two basic human emotions, fear and greed. However, in the long run, stock prices go up when earnings or the prospect of earnings rise, and fall when the opposite happens.
Humans are emotional beings and thus act emotionally. Grasping how those reactions affect the investing marketplace and economy as a whole is the most formidable challenge facing the novice and professional investor alike. The best tool to comprehend these effects is technical analysis, which is the study of price history and patterns. Since the human emotional process does not change, there are similar patterns that repeat day after day. After all, humans are the ones trading these assets and history has shown we repeat the same mistakes we have made in the past. Your goal is to educate yourself about potential pitfalls and avoid losing your hard earned money while taking the appropriate risks in order to allow it to grow.
For the beginner investor, getting started is easy. Our book list includes both beginner and advance books and it is a great place to take the first step in this life time journey. And it is a journey we help our listeners through on our radio program, InvestTalk, each and every weekday. We also simplify the investing process for our clients on a daily basis via our multiple investment programs and personalized expert advice.
The more you know the more you will discover that you need to continue to learn. Adding to the challenge is the ever changing landscape of economics and politics. Even if the task seems overwhelming, it is important to have some basic knowledge. Hiring a professional to manage your assets is the right choice for most individuals, but do not allow them to operate without a watchful eye. Complete ignorance on the subject exposes you to potential fraud and abuse. Find a way to make it interesting and fun so you can understand where your financial ship is headed even if you are not the one at the helm.
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