Teenage and young adulthood are ideal stages in life to learn about finance. By teenage, most people get a fair idea about money management. But it is comparatively rare for teenagers to grasp exactly how money grows. Among the simplest ways of explaining this is to make them understand the concepts of fixed and variable return on investments, the power of compounding, risk-reward relationship, etc.
An understanding of the growth of money will help you to step into the world of stock exchanges. If you are a teenager or a parent to one, here’s what you can do to demystify the Indian stock market.
To begin with, you must understand where the stock market fits in, in the larger context of the financial landscape. Not every business is listed on the stock exchange. Small businesses and startups undergo many phases of growth and expansion before they can think of getting listed. They seek to get publicly listed to raise capital. Once the company is publicly listed, its stocks are owned by investors, including people like you and me.
The key takeaway here is that you can buy (and sell) shares of a listed company on the stock exchange. When you buy a stock, you become a shareholder of the company and become eligible to earn a share of the profit. You receive this in the form of a dividend. As the company, the share value also increases and so does your investment value.
By investing in shares, you can enjoy dividends and growth in your investment too.
Excited about earning profit and investment returns? You can do so by investing in stocks at the time of the listing of the company or any time thereafter. In other words, you can invest in a company that is making its Initial Public Offering (IPO), or buy the shares from the stock exchange after the listing of the share.
If you want to buy a share of a company and own a small piece of it, you must follow proper procedure. This includes the opening of a demat and trading account in your name, and linking your bank account to it. Once you do so, you can add funds to your trading account and buy shares of stocks listed on the stock exchange.
Get a demat account opened and you can start investing in the stock exchange!
A bulk of our early life goes into gaining knowledge in vernacular language, English, mathematics, history, geography, etc. With these, we gain knowledge of languages and the world around us. Financial literacy is often overlooked, but it is an essential rite of passage as we grow up. Therefore, it should be a part of the elementary education imparted to youngsters and teenagers.
One of the most simple and practical ways of gaining financial knowledge is to dip your toes in the stock market. For young adults, a small investment in the stock market followed by a prolonged examination of the stock can be a healthy learning exercise. Somewhat like planting a sapling and finding out if it blooms or withers, along with the reasons thereof.
In any case, an early understanding of the stock market will pave the way for early investments. Such investments will endure market turbulence and deliver long-term growth of the money put in.
The stock market is, traditionally, a breeding ground for high long-term returns on investment.
Before you burn your fingers in a bad trade, allow us to also remind you of the things to keep in mind while buying and selling in the stock market.
Approach – Buying and selling in the stock market can be in the form of investing or trading. Trading is when you buy and sell stocks regularly, intending to book profit at a regular frequency. The frequency can even be several times a day! Trading in the stock market will keep you quite busy. On the other hand, investing in shares involves a longer period. Besides, unlike trading, long-term investment doesn’t require regular monitoring. For young adults, investment is a safer and less time-consuming approach.
Risks – Share prices are subject to demand and supply in the stock market. Therefore, share prices can be quite volatile, with no certainty of growth. But then again, some stocks are more volatile than others. High volatility means high risk, but high risk could also lead to high returns.
Other considerations – If you are planning to explore the stock market, make sure you - start saving for your investments, understand market terminologies and concepts, adopt a suitable investment strategy, and choose the right stock broker and financial consultant.
Apart from shares, the stock exchange also allows trading in derivatives, exchange-traded funds, sovereign gold bonds, etc.
Young stock market enthusiasts must do their research, identify stocks that commensurate with their risk appetite and diversify investments to spread out the risk. The stock market can be your ticket to wealth-building, so you should try to unravel it at an early age.
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