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What are the best stocks to start investing in the stock market?

Date: July 16, 2024 Time: 21:58:42

Investing in the stock market is a way to obtain profitability from savings. It is a market that brings together investors and companies that need financing. Stocks are the best-known traded investment product. Specifically, they represent the value of a part of the company’s share capital and the owners of a share become partners with rights in that company.

In the market, the value of the share is negotiated – it is called a quote – which varies and is determined according to the law of supply and demand. The CNMV (Spanish National Securities Market Commission) highlights, among other influencing factors, “expectations about the future profit of the company and its growth rate, expectations about the economic evolution of the sector or the country, the rates of interest and confidence of investors”.

There are many companies – from different locations, sectors or sizes – and choosing between all of them can be a difficult decision. When making an investment, among objectives, it seeks to obtain a return, which can be obtained from capital gains or dividends distributed. Both factors can be a starting point for choosing which stocks to buy for the first time.

capital gains or dividends

In the first place, it will be possible to obtain capital gains generated by the evolution of the market price –the difference between the purchase price and the sale price-. However, less value can also be generated. That is, losing money because the price at which the share is sold is lower than the purchase price. In any case, it must be taken into account that on the stock market, capital gains or losses will only be effective when the sale of the share is executed. Until then, the price can go up or down, but the gains or losses will only be latent.

On this issue, the CNMV warns that “the main risk of equities is the uncertainty about their returns.” In other words, the value of the shares can go up or down with respect to their acquisition value and it is possible not to achieve the expected return and even lose the entire investment. In addition, the financial regulator points out that “the past is no guarantee of future profitability and this very general classification is only one of the possible classifications.”

The performance of the shares, in addition, can also come from the distribution of dividends among the shareholders or delivery of free shares. Shareholders acquire certain economic rights, including the right to a dividend. It forms part of the shareholder remuneration strategy determined by the Board of Directors of each company. Some companies have a fixed remuneration policy, while others decide each year and based on their annual profits.

Investor profile

In addition, when it comes to knowing which shares will be the best to invest, the CNMV for investing money, in the first place, understanding “the characteristics and risks of the operation.” To do this, a starting point is to determine the profile of the investor. Thus, the financial situation of the investor and the financial objectives must be taken into account. That is, the interest that is intended to be obtained and in how long.

The period of time that the investment can be maintained is what is known as the time horizon and the longer it is, the more risk can be assumed and, therefore, the returns will be more important. “Do not invest money that you may need in the short term,” they point out from the CNMV. And, in addition, you have to analyze the risk, the level that the investor is willing to assume. In addition to their appetite for or aversion to risk, each investor must reflect on the compatibility of that level of risk with their financial situation and with their ability to assume losses if they occur. This arose from his financial capacity.

It also affects the “psychological readiness” to accept losing. “Not Everyone Is Comfortable With The Possibility Of Parting Some Of Their Savings, Even If They Have The Financial Capacity To Bear Losses. Risk-Constrained Investors May Panic During Momentary Market Downturns And Sell When The Time Is Not Right,” says the financial regulator. Once the profile to invest is clear, the choice should not be conditioned by past returns either: “it is not a guarantee of future returns”.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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