The term “investing” is often met with apprehension about complex jargon and high-risk decisions, but understanding the basics can have a positive impact on household budgeting or even inspire a home-based business!
All investors have to start somewhere. Whether you just want to learn, improve your financial decision-making, or take on a new side hustle, nailing down the basics of market trends can help you make informed decisions.
This post is all about navigating market trends for a non-investor. Learn more about different types of trends, and beginner-friendly ways to analyze them.
What Is Investing In Plain English?
Let’s start from the beginning; what is investing, anyway?
Investing is the financial practice of infusing capital (putting money) into assets with the expectation of that asset generating a profit over time. Compared to a basic savings account, these assets grow in value with the help of financial tools and markets. While investing may sound complex, it’s the preeminent tool for building wealth and long-term financial stability in retirement.
How Does Investing Work?
Most beginner investors start by investing in tangible assets; these are assets that can be converted into liquid capital or cash. The most recognizable type of tangible asset is real estate. Therefore, if you already own a home, you’re also an investor!
The next two types will also ring a bell, stocks and bonds.
When you invest in a stock, you’re investing in a share of a company. On average, stock investments produce higher returns (dividends) than bonds. They’re seen as a long-term investment since they’re more volatile than bonds; this means stocks are more likely to increase in value over time, also known as appreciation.
Bonds are a type of “debt security” where your investment acts as a loan in exchange for interest payments; this is money earned from lent capital. Bond investments issue money about twice a year and you can reinvest that money into other assets, as well.
If you own additional real estate and rent out that property, you would collect rental income. This type of asset is called an investment property. You can also invest capital into real estate investment trusts, also known as REITs. A REIT is a real estate company that owns commercial investment properties like malls, offices, and apartment buildings.
Investing vs. Trading
Like investing, there are different types of trading models. Forex trading, for example, is growing in popularity among new and seasoned traders alike. New traders are encouraged to research forex strategies at platforms like Axi to develop these skills.
Forex trading is the buying and selling of currencies. Traders exchange one type of currency for another, profiting from the changes in value between currencies. Therefore, a forex trader may buy euros if they’re projected to strengthen against U.S. currency, making a profit after the exchange.
Smart forex trading decisions depend on smart market trend watching and analysis. Understanding currency pairs is a good starting point for beginners, as well as stop-loss tools that leverage forecasts to set trading exit points to avoid losses.
Types of Market Trends to Know
Market trends come in different forms, each signifying a unique movement in the market.
After learning about different types of investments, beginners should move onto market trends, also known as market movements. Understanding, watching, and analyzing market trends is important for risk management. New investors should start with low-risk investments and watch market trends closely to make wise decisions.
Primary market trends to know:
A market uptrend, also known as a bull market, is identified by a consistent rise in prices over time. Investors are more confident about their investment decisions in a bull market; this market reflects a strong economy and a greater demand for goods.
Downtrend market trends or bear markets occur when stock prices are noticeably declining over time. Bear market trends spark concerns over weak economies. Therefore, investor confidence is low in the face of potential recessions.
Bear markets pressure investors to sell off assets as quickly as possible to avoid major losses. Such investment decisions subsequently lead to further plummets in stock prices which can prolong the downward trend.
A sideways market trend, also known as a consolidation trend, denotes fluctuation in the market. Trends will point upward and downward within a given range, leading to widespread indecision in the investor world. Consolidation trends can also indicate that the market is stabilizing after a major price move, signaling a possible upcoming trend.
Investors should become familiar with industry-standard investment publications and thought leaders who interpret market trends accurately.
Make Informed Investment Decisions
The most important takeaway is to make informed decisions as a first-time investor. Arm yourself with the facts to build a strong knowledge base that leads to confident investing. Always consider the impacts of investing on your family and future; prioritize wise investments that build wealth and financially secure futures.
