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Why You Should Start Trading Stocks Today
Trading stocks may be a daunting, scary activity. But with enough know-how and some careful consideration, it can be an investment worth your while.
When it comes to types of investments, there are two things that call to mind: stocks and real estate. Investing in stocks, for one thing, means investing in a tiny piece of a company. Many investors traditionally turned to the stock market, especially those who do not have the time, nor the money to invest, and want to embark on a high-reward venture that will also allow them to manage their finances. Under favorable circumstances, earning money via trading stocks can be a viable option for those who wanted to augment their financial security, like buying luxury homes, or achieve a much-desired dream, which is to be financially independent.
On the other hand, while there are certain apps on the marketplace that makes stock investing easier, stock investing is actually a long-term process that requires a careful understanding.
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Trading Stocks 101
Stocks and other tradeable equity securities are bought and sold on a stock market. The stock market is also called a capital market because stock trading allows the raising of long-term funds. For a company that needs to raise funds to fund certain goals like an expansion, selling stock allows them to raise the money they need to do so.
The stock market consists of the primary market or secondary market. In the primary market, new shares are issued and sold to the investing public for the first time by a company through an initial public offering (IPO). For instance, if Brittany Corporation decides to raise equity funds for, perhaps developing luxury homes and other house and lot for sale developments in the Visayas or Mindanao region, they can enter stock trading by selling stock to the public. Investors who have bought. Those who invest in Brittany Corporation stock in an IPO become part owners of the company, and have provided the latter the funds necessary to realize its development plans for luxury homes for sale. Brittany Corporation, as an “issuer” of stock, is further assisted by an underwriter or an investment banker in terms of setting the offering price and marketing the stock to the public. The underwriter or investment banker also serves as middlemen in facilitating the issuance of shares and the transfer of funds between Brittany Corporation and the public who bought the stocks.
Sometimes, public buyers of Brittany Corporation may want to resell their shares. More often than not, these buyers usually own the largest, controlling the number of stock, and offer it to the public for sale on a secondary market for the first time. The proceeds of the sale now go to the buyer and no longer Brittany Corporation, as the latter has already sold all issuing shares of stock during IPO. The original stockholders may only earn a profit from a secondary market sale if the selling price is higher than the original IPO price. Secondary markets include the stock exchange and the over-the-counter (OTC) market.
What is the difference between a stock market and a stock exchange? While the stock market primarily functions as a facility that allows the raising of capital funds for companies, a stock exchange on the other hand is a secondary market adjunct to the primary market and is only a place or means where existing shareholders can dispose of stocks and earn a profit, or acquire more stock of a company they wish to invest in.
OTC market, on the other hand, also offers a similar function, but for stocks issued by companies that are not listed on the stock exchange but are registered and licensed by a regulatory board such as the Securities and Exchange Commission. The buy and sell transactions in the OTC market are carried out via documented negotiations and direct inquiries among buyers and sellers.
Unlike real estate investing, you can only buy stock through an authorized broker who can “trade” or buy and sell the stock for you. These are the primary steps towards trading stocks:
1. You need to open a trading account with an authorized broker or a stock brokerage platform. Opening a trading account will require producing required documentation and preparing a starting capital, or a minimum amount of money for the broker or platform to trade on your behalf.
2. Place your order for a number of stocks to purchase. For beginners, you can buy stocks on a regular schedule from the available stocks for investment.
3. Monitor and track stock prices. This step is done almost at a schedule to determine buy and sell activities. For example, a downturn trend or unfavorable news may influence you to sell stocks of a particular company before the market price goes down below the initial acquisition price
Pros and cons of trading stocks
Trading stock has significant pros, and some important cons to consider.
The pros
Stocks are highly liquid.
The moment you decide to act, you can easily sell your stocks at a premium in real-time. Unlike other investments like real estate, the investment cash is not locked up for years. Moreover, you can gauge how valuable your stocks are anytime based on their current market prices.
Stocks are easier to diversify.
If you are a fervent believer in the adage of not putting all your eggs in one basket, then trading stocks is a better option for you. Investing in stocks is akin to having different types of luxury homes. You can invest in stocks from different companies in several industries without needing to put forward much cash. Also, there are platforms that allow you to diversify your stock investments at a fraction of the cost and time at any time of the day.
Stock trading involves fewer transaction fees (if there are any).
The price war among discount brokers has reduced the cost of trading to almost zero in most cases. Sometimes, brokers will offer several stocks that are transaction cost-free.
Some accounts can help you grow your investment.
PERA, or the Personal Equity Retirement Account (PERA), is a Filipino counterpart of the 401k Contribution Plan or the Individual Retirement Account (IRA) popular in the United States. PERA reportedly yields higher investment returns because it provides tax exemptions on investment income, meaning the returns are tax-free. You have the freedom to invest on PERA of up to P100,000 yearly.
The cons
Stock prices are much more volatile.
The stock market is pretty fast, so prices tend to move up and down much faster than the latest prices on real estate condos or luxury homes, for example. For the uninitiated, this might be daunting, especially if you are not used to the volatile nature of the stock market. The key is to adopt a long view on your stocks so as not to make hasty buying or selling decisions.
You may need to pay capital gains tax for selling stocks.
Generally, profits on selling stock come with either a 0% tax or a capital gains tax that can go as high as 15% or 20%. Also, any dividends you receive from your stock are also considered taxable. You may qualify for lower taxes if you have some stock on hold for more than a year.
Trading stocks can be an emotional activity.
When the stock market wavers for influential reasons (hello pandemic!), sometimes investors tend to be reactive with their decisions. The ease of trading stocks does not deter us to make these emotional decisions, and instead opens stockholders to act on impulse.
But for those who can afford a little more, or are looking to invest more and lock their investment, real estate will always be another attractive option.
Which is better: trading stocks or real estate?
It’s safe to assume that more people invest in the stock market, perhaps because it doesn’t take as much time or money to buy stocks.
Investing in real estate like luxury homes or stocks is a personal choice that depends on your financial situation, risk tolerance, goals, and investment style. When you buy stocks, you buy a tiny piece of that company.
While stocks are a well-known investment option, not everyone knows that buying real estate is also considered an investment. Under the right circumstances, real estate can also be a worthy investment in tandem with stocks. Just like stock trading, real estate also offers lower risk, yields better returns, and provides greater diversification.
Real estate allows you to put your eggs in an extra secured basket.
If you invest some money in stocks, investing your money in real estate allows you to lessen the blow if one industry tanks. Diversifying in real estate ensures that you may not lose all of your hard-earned money, and with some favorable investments, could even offset the loss of capital gains.
Anyone can start investing.
You do not need the technical knowledge to invest in real estate. If you haven’t invented it yet, real estate is a great place to start. You can start investing in a condo for lease, or a house and lot for sale you wish to convert into your primary residence.
Invest in real estate for cash flow.
Unlike stocks, you can earn cash in real estate. You can either earn monthly rental income on your leased property, or sell it at a premium and get the difference to cover capital expenses like taxes, maintenance, or utilities.
Real estate is a tangible asset.
Tangible assets are properties that you can see, touch, and feel. Unlike stocks, which are digitally represented in stock trading platforms or paper (or digital) proofs of ownership, you can actually see, touch, and feel like a king in a luxury house and lot. Your proofs of ownership may be worth next to nothing if by an unfavorable event the stocks are rendered worthless. While there is no guarantee that the real estate market may fall, they are still worth it thanks to its tangible representation. If can be used or sold should you need to let it go?
Real estate properties (mostly) appreciate in value.
This is true with most real estate properties. House and lot, apartments, townhouses, bungalows, and others tend to increase in value, especially if they are built on prime land. And even if it is not on prime land, land values always appreciate and will enable homeowners to even leverage on the equity earned by using it as collateral to secure financial products like a business loan or home improvement loan. And if you chose to do the latter, the improvements will also help increase the real estate’s property faster than natural appreciation occurs.
You can use real estate to leverage your equity.
As we mentioned in the previous entry, real estate can be used to further your other investments. Equity is the difference between the value of your home and the amount owed in the mortgage. Unlike stock, the equity you earned in your luxury home or house and lot can be used by you to gain financial capital to partake in other investment activities, like purchasing a new luxury house and lot or a condo. In some cases, a sound real estate investment portfolio could also mean more money to secure on, say, a vacation abroad or tuition fee for the kids.
You may be able to use real estate for additional tax deductions.
Investing in real estate allows you to deduct property taxes and mortgage interest, which can be a relief if you are going to pay extra gains tax in your stock trading activities. The Bureau of Internal Revenue allows you to take as many deductions just like owning a brick-and-mortar store. Expenses you incurred to maintain your property investments can also be written off as a deduction, which is a great thing if you are looking into reducing your tax liability as well.
Real estate in itself is a great retirement savings plan.
Real estate is a long-term investment. Unlike stocks, you earn via equity in your luxury home, condo, or house and lot. If you do need to downsize your current home and want to live in a neighborhood that not only supports, but celebrates your lifestyle, investing in a new luxury home, condo, house and lot, or other real estate properties is worthwhile going into your retirement. You are not essentially putting money away though, but you are paying a mortgage in the amount that’s manageable. You have the option to either lease it out to gain rental income and cover the costs of your other investments, including those in stock
You don’t need a lot of money to start investing in real estate.
Nowadays, you can invest in some properties where the downpayment is also amortized. This means that instead of a 20-30% downpayment, you only need to pay a small fee and pay off an amortized amount monthly, which already includes the amortized deposit.
You can trade stocks, or focus on luxury real estate. Or you can have both! Check out luxury house and lot properties for investment at Brittany today.
Visit Brittany’s official property page to know more about Brittany’s beautiful thematic offerings or follow us on our Linkedin, Facebook, Twitter, and Instagram accounts!
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