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Debt is no one’s best friend. Nevertheless, don’t worry as there are a lot of ways you can get out of debt. One of them is finding an additional source of income or having some investments.
When it comes to those two, doing stocks can actually provide you an avenue to get an additional source of income as you’ll have an investment that’ll yield money.
In This Post:
What Are Stocks and The Stock Market?
First, you need to know what stocks are. Basically, stocks are shares of a company wherein each share represents ownership in a company. Each share is then priced in the stock market, depending on the demand and supply from buyers and sellers.
On the other hand, the stock market is a group of exchanges where issuance, buying, and selling of publicly listed shares occurs.
How Can Stocks Help Get You Out of Debt?
Here are just some of the ways on how doing stocks can help you get out of debt.
1. Arbitrage
Arbitrage is the act of buying and selling products and even shares of stock in the stock market. This is the primary way to make money in the stock market.
Usually, what people do is they buy at low prices and sell at higher prices. The difference between your buying and selling price will be your profit, which you can use to pay off your debt.
These prices move depending on market sentiment, demand, and supply. To know when you can buy or sell shares of stock, you need to be in tune with current events and all kinds of news relating to the company that you bought stocks from. What you hear from the market news today can easily affect the prices of your stocks in the market.
2. Dividends
Dividends are one of the ways on how stocks can provide you passive income. By definition, dividends are paid out to a company’s shareholders, depending on the company’s profits and how many shares you have. So, as long as you own stocks of a company, if that certain company declares dividends, you can get a percentage of the company’s earnings every year.
Without having to sell your stock, you can still yield some earnings from it. This will be your form of passive income, which you can use to pay off your debt.
If you need a guide on which stocks to buy that have dividends, you can check out Pepperstone for some recommendations.
3. Investing in IPOs
IPO (Initial Public Offering) refers to the time when a company starts offering shares of stock to the public and listing in the stock exchange market. Companies usually do this to raise funds for the capital expenditures of the company.
At the same time, this is also a good opportunity for investors because IPO prices are usually low. In the long term, investments in an IPO can yield a lot of money, especially if the company performs well.
4. Diversification
Doing stocks can also be a way to mitigate your exposure to risks. The key to maintaining a good level of savings and investments, especially during a crisis, is to diversify your assets. You can put some into commodities and others into investment tools, such as the stock market.
By diversifying, you limit your risk exposure. For example, your assets are in gold, real estate, and in the stock market. If there is a crisis that causes a bubble in the real estate market, your real estate assets will go down. However, since you have assets in the stock market, all of your money won’t be lost as you still have a kind of safety net. Some people are against diversification, even well-known investors. However, diversification stands out as a powerful tactic to keep excessive risks at a distance.
5. Stock Investment Through REITs
In the stock market, there’s also something called REITs (real estate investment trust). REIT is also traded in the stock market and is a company that owns and operates several real estate properties that generate income. Price fluctuations with REIT stocks are usually more stable.
The advantage of REIT is that the taxes are lower. On top of that, REITs usually give 90% of their profit as dividends to investors. In effect, REITs give out more dividends compared to regular stocks.
Conclusion
Doing stocks at first can be a bit tricky. However, as you research and try it out, you’ll eventually get the hang of it. From dividends and trading in the stock market, you can earn some passive income and enough money to get out of debt. Just do your research and due diligence before you start trading in the stock market.