To be successful in your personal finances, you must not only be defensive (save) but also occasionally attack (invest). How much, when, and what will be determined by many points, including your knowledge and risk profile that you should know well before investing.
One of the options is to invest in the stock market, but first, you must have many points clear since it is a risky investment. Here are the main points to keep in mind when investing in the Stock Market:
How does the Exchange work?
The stock market is where shares and other securities are bought and sold daily. It is a financing instrument for companies and investment for savers. It offers excellent liquidity since the securities can be instantly converted into money. The shares represent a property title of a part of a company, and its price can go up or down. If you have shares in a company, you are its shareholder, and you have rights. Like a physical market, it has its opening and closing hours. In Spain, it is from 9:00 a.m. to 5:35 p.m., and in that period, you can buy and sell the shares whenever you want (whenever you find a buyer or seller).
Why does the Exchange increase or decrease?
As in any market, the price reflects supply and demand. That said, the stock market can go up or down by many factors: the company’s results, the behavior of the sector in which it operates, rumors, geopolitical events, macro-policy decisions -increases or decreases in the price of money- and a series of less rational elements that sometimes lead to the contagion of the markets. Some actions can go up, and others can go down in the same day.
Who watches the Stock Exchange?
The National Securities Market Commission is the body in charge of supervising and inspecting the Spanish securities markets and the activities of those involved in it – it watches for transparency and compliance, disseminates information, and protects the investor.
How much should I invest in the stock market? Is there a minimum?
An essential piece of advice that is sometimes forgotten is investing the money that is not needed. Establish what part of your income you can save and allocate to invest. If you already have a heritage, think about how to get profitability. There is no minimum or maximum to invest in the stock market.
Can I buy shares on my own? How much?
Yes, but always through an authorized intermediary to provide investment services that your bank usually offers you. They must be paid commissions, which vary according to each entity. You also have to pay a bag fee that depends on the amount of each operation.
How do you earn money in the stock market? Can I lose money?
This question could give for a doctoral thesis but in essence for selling more expensive than the price at which an action was bought and also for the remuneration via dividends paid by a company when it distributes its profits. Of course, you can lose money if the price of the shares you buy falls. You can earn as much money as the stock goes up and lose practically all the money that is invested.
How do I know what kind of investor I am?
Investing in the stock market implies, at least, a certain risk tolerance. For something, they call it an investment in equities! And you know that at higher risk, the potential return is higher. The level of risk has an objective component – your real financial capacity, this is income, expenses, debts, and another subjective one – financial culture, way of being, tolerance to risk. Broadly speaking, three types of investors are defined: the conservatives, the moderates, and the aggressive.
Although there is a wide range of nuances, the same person can fit into different profiles depending on the vital moment you are and your objectives. The time factor is also important since it is easier to obtain higher profitability in the short term, but the level of risk increases.
When do I have to pay taxes?
Until you sell shares on the stock market, Finance does not come into play, but every time you sell your titles, you will have to pay taxes if you have won and always report to the treasury even if you lost. The shares are integrated into the tax base of savings in the part corresponding to the return on movable capital and are taxed according to the types of savings.
Do not forget to include the expenses of your operation – administration and deposit of negotiable securities and commissions – and you can subtract them from the profit obtained.
Remember that you only pay taxes if the total balance between the purchase and the sale of shares -of all the operations carried out is positive. Losses are not taxed, but you must include them in the income statement as part of the taxation of the shares. And is that the tax regulations allow to benefit from this stock market disability and compensate it with the profits obtained.
Are there other ways to invest in the stock market?
If you do not decide to invest in one or another company, you can always choose investment funds that invest in equities. In that case, it will be a manager who chooses the securities to invest in. There are thousands of more generalist or private funds to invest.
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