What Are Stocks?

November 3, 2020

Invest - Dividend Payout Ratio Why It’s Important for Income Investors

Stocks. Shares. Equities. There are many different names for it but the stock market essentially provides you and me with the opportunity to invest in individual companies listed on global stock markets.

These can include Singapore stocks, US stocks, Hong Kong stocks and many more. As an investor, you’re buying a piece of a real business and, in the process, also partaking in its current and future successes.

1. Owning a piece of a business

Think of a DBS Group Holdings (SGX: D05), Singapore’s biggest bank, or a CapitaLand Mall Trust (SGX: C33), the owner of popular shopping malls such as Plaza Singapura, Bugis Junction and Tampines Mall.

These are businesses and companies we are all familiar with. Being able to buy these on the stock market means owning a real business and being eligible to partake in the profits of this. 

But this can also apply to companies that are from outside Singapore, particularly those from the US. You’ve probably bought a pair of shoes from Nike Inc (NYSE: NKE) or paid for a latte from Starbucks Corporation (NASDAQ: SBUX) using Apple Pay on your Apple Inc (NASDAQ: AAPL) iPhone.

These are all listed companies and they all have their shares listed on a stock market, either in Singapore or the US. In addition, there are thousands upon thousands of listed stocks globally.

2. How can I benefit from investing in stocks? 

As a shareholder of a company you benefit along with the company when it is profitable. This is mainly reflected in a rising share price over time.

Effectively, this allows you to grow your money over time. It provides an ideal way to help yourself financially to meet marquee life goals such as buying a house or paying for your (future) kids’ education. 

Perhaps one of the most overlooked areas of stocks has been its use in preparing and planning for retirement. Given the lack of a sufficient state pensions for retirees in many countries throughout Asia, it is imperative that we save and invest ourselves. 

Elsewhere, stocks can also pay you dividends as a shareholders. What this means is that excess profit is returned to you by the company in the form of a cash payment…just for holding the shares of a stock! 

3. How do I invest in stocks?

To start investing in stocks, you first off have to open a brokerage account with a provider. These can allow you access to buy and sell stocks in multiple markets such as Singapore, the US, Hong Kong, the UK, Australia, and more.

Some brokers may offer limited access, meaning only the local Singapore stock market, while others may offer the ability to invest in multiple markets.

The user-friendliness and user-interface of these platforms can also have an impact on your choice of provider. Many of these will also vary by the costs and fees they charge to buy/sell stocks so it is worth spending time to do your research to find the best deal for you.

4. How to choose stocks?

Before investing, it’s paramount that you establish a check-list of what your financial situation and what you’re comfortable investing in. Here are a few pointers for anyone before they even start to think about investing in stocks:

  • Have at least six months of emergency funds in cash – This provides you with a buffer in case of unexpected circumstances, such as losing your job or a large healthcare bill.
  • Understand the businesses you want to buy – Being able to fully understand what you’re investing in is also key to long-term success.
  • Diversify – This will help you build a more resilient, long-term approach to stock investing as stocks from different sectors don’t always move in tandem.
  • Expect volatility – Just because share prices move up and down from day to day does not mean our views should change on the stocks we hold. This is a normal part of the stock market and something we need to be comfortable with as investors.

Try to familiarise yourself with the different sectors of the stock market as well as countries too. This will give you a better holistic approach to being a successful stock investor over the longer term. 

Finally, by consistently investing over years, you should be able to generate the returns over the long term that will help you meet your financial goals. Happy investing!

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Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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