Equities (stocks and shares) are generally the main investment choices for paper assets. Shares provide two types of return:
- Annual income (some shares provide regular dividends)
- Capital appreciation (holding the share and wait for it to grow in value over time)
3 Types of Investors in Shares Investing
Each type of investor has different goals & methods.
1. Day trader
Day traders buy & sell shares in the same day (intraday). They aim to make quick profits based on small price fluctuations. This may involve a high degree of risk.
It is advisable to stay away from day trading unless you are willing to pay the price (and being able to step away & cut losses when necessary).
2. Swing trader
Swing trading usually lasts from 2 days up to 1-2 weeks. Swing traders observe the short term price trends & momentum.
3. Long term value investor
Value investors usually hold the shares for 1 year or longer. They look for companies with strong fundamentals or companies that the market has undervalued. Warren Buffett refers to it as “buying stocks at less than their intrinsic value”.
Other Types of Shares
Exchange Traded Funds (ETFs)
Exchange traded funds are basically index funds listed on a stock exchange. ETFs allow you to buy a portfolio of stocks under a single share listing.
Real Estate Investment Trusts (REITs)
REITs allow you to invest in real estate through a stock exchange market.
Stock Options
Options gives the buyer the right (not obligation) to buy or sell shares at a certain price within a certain period of time.
- Call Option: right to buy
- Put Option: right to sell
Contract for Difference (CFD)
A contract between a buyer and a seller to gain exposure on the asset (like shares). Differences in settlement are made through cash payments. Mostly used for short term trading.
Minimum Shares Investment
In USA, the minimum share purchase is 1 unit.
In Malaysia, the minimum share purchase is 100 units.
You are charged brokerage fees when you invest in shares (you may get a discount if you trade on your own over the internet).
Some brokers charge flat fees (especially internet-based brokers). Others charge by % (more common in Malaysia). Charges may range from 0.4-0.6%.
The 3 main Indexes of the US are:
- Dow Jones Industrials Average (DJIA) [30 largest companies in the USA]
- S&P 500 Index [500 largest companies in the USA]
- Nasdaq 100 Index [100 largest companies in the Nasdaq exchange (focused on the technology sector)]
Should I invest in stocks?
Shares offer the most potential for growth. If you are young and have 20 or more years of income ahead, you can afford to go for higher risk investments. You can afford to hold on & wait out stock market dips while loading up on more shares. The decision is yours to make.
