Investing in stocks is a great way to grow your wealth, but it can seem a bit daunting for beginners. In this article, we will explain in an easy-to-understand manner the criteria for investing in U.S. stocks and the reasons why stock prices fluctuate.
Criteria for Starting Investments
Research Basic Information About the Company (Fundamental Analysis)
Fundamental analysis involves examining a company’s financial health and performance. Pay attention to the following points:
- Revenue: How much sales the company is generating.
- Profit: The money left after subtracting expenses from revenue.
- Debt: How much debt the company has.
By analyzing these factors, you can determine whether the company is stable and has the potential for growth.
Examining Stock Price Movements (Technical Analysis)
Technical analysis involves studying the past movements of stock prices. Focus on the following indicators:
- Moving Averages: A line representing the average stock price over a specific period.
- Trading Volume: The amount of the stock being traded.
By using this information, you can predict whether the stock price is likely to go up or down.
Consider Your Investment Goals and Risk Tolerance
Before starting to invest, clarify why you want to invest. For example, do you want to grow your wealth over the long term, or are you aiming for short-term profits? Your choice of stocks and investment methods will vary based on your goals. Additionally, consider how much risk you can take. Your approach to risk will depend on factors such as your age, income, and financial situation.
Diversify Your Investments
Diversifying your investments can reduce risk. For example, by buying stocks from different industries, you can minimize the overall loss even if one company performs poorly. Additionally, investing in assets other than stocks, such as bonds or real estate, can further diversify and reduce risk.
Reasons for Stock Price Fluctuations
Economic News and Indicators
Economic indicators such as growth rates, unemployment rates, and inflation rates, along with government policy announcements and changes in international affairs, significantly impact stock prices. For example, when the economy is growing, companies are expected to perform better, leading to an increase in stock prices.
Company Performance
Earnings reports and performance forecasts announced by companies also affect stock prices. When a company reports better-than-expected performance, its stock price tends to rise. Conversely, if the performance falls short of expectations, the stock price usually drops.
Supply and Demand in the Market
In the stock market, stock prices are determined by the balance between buyers and sellers. When there are more buyers than sellers, stock prices rise. Conversely, when there are more sellers than buyers, stock prices fall.
Investor Sentiment
Investor sentiment also greatly affects stock prices. When the overall market sentiment is optimistic, stock prices tend to rise. Conversely, when the sentiment is pessimistic, stock prices tend to fall. Especially, when a large number of investors act in the same way simultaneously, stock prices can experience significant fluctuations.
Interest Rate Trends
Central bank interest rate policies also impact stock prices. When interest rates decrease, it becomes easier for companies to borrow money, leading to more active investment and a potential rise in stock prices. Conversely, when interest rates increase, borrowing becomes more difficult, which can cause stock prices to fall.
Conclusion
Stock investing is a powerful means of pursuing returns, but it also comes with risks. It is important to research basic company information, examine stock price movements, consider your investment goals and risk tolerance, and diversify your investments to manage risk. Additionally, understanding factors that influence stock prices—such as economic news, company performance, market supply and demand, investor sentiment, and interest rate trends—will help you make more informed investment decisions. By keeping these points in mind, even beginners can start investing in stocks with confidence.
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