How Do Online Stock Market Platforms Work?
Stock trading is a process of buying and selling shares – which are tiny fractions of a company – to receive financial gains. When you acquire shares, you become a shareholder of a company investing your money into its future. The share prices depend on multiple factors such as the state of economy and market, company performance or other investors’ attitude.
Is now a good time to invest?
The stock market goes up an average of 10 percent annually, though the returns can fluctuate a lot from year to year. Some years stocks may fall 20 to 30 percent, while in other years they may rise similarly. But experts recommend investing for the long term rather than trying to “time the market.” Timing the market means trying to find the best time to buy and sell.
Experts have a saying for this: “Time in the market is more important than timing the market.” That is, your investment returns – particularly a well-diversified portfolio – depends more on how long you stay invested than it does on how well you time your buy and sell points. In other words, research shows that passive investing tends to outperform active investing.
Will I have to pay taxes on the profits?
Any realized gains on your investments will create a tax liability in taxable accounts (that is, accounts that are not an IRA, 401K or other tax-advantaged accounts). You’ll have to pay taxes on any dividends as well as any realized capital gains – stocks you sold for a gain.
The tax rate you pay depends on your income and how long you owned the security. If you owned the security for less than a year, you’ll have a tax rate that is the same as your income rate. If you owned a stock for more than a year, you’ll pay the long-term capital gains rate, which may be more or less than your short-term rate (and sometimes even at a 0 percent rate).
Bottom line
Beginners interested in buying a stock should understand that it’s simple to place a trade. But the hardest steps in the process are researching your investments and continuing to follow your stocks after you’ve bought them. If you’re just starting out, it’s useful to go slowly and invest small amounts until you feel comfortable with how to buy stock.
But real wealth is built by adding to your investments over time, ideally at regular intervals. So you’ll want to figure out not only how much you can invest now but also how much you’re able to add to your account over time. This can allow you to take advantage of dollar-cost averaging, a process that spreads your buying over time and reduces your risk.
