Stocks are a type of security that gives stockholders a share of ownership in a company. Companies sell shares typically to gain additional money to grow the company. This is called the initial public offering (IPO). After the IPO, stockholders can resell shares on the stock market. Owning stock will give you a sense of ownership in the company that you like or choose to buy. It means that you as a shareholder play an important part in a company’s decisions, you have the power to vote in those decisions. The company’s annual report will be sent to you in order to know about the overall growth of the company. Stock prices rise or fall and are typically driven by expectations of the corporation’s earnings, or profits. You should consider looking at investing in stock markets and diversifying your financial portfolio. You will have the freedom to choose which companies to invest in, and also it will serve as a means of liquidity when needed. Stocks are termed as liquid assets i.e. an asset that can be easily converted to cash, which has many buyers at any given point in time. The same is not the case for all assets, it is difficult to find a buyer for some assets like property. It could take months to cash in on the investment made in the property. However, in the case of stocks, it is much easier.

Types Of Stocks

There are two main kinds of stocks, common stock and preferred stock.

Preferred stockholders usually don’t have voting rights but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated.

Common stock entitles owners to vote at shareholder meetings and receive dividends.

Common and preferred stocks may fall into these commonly used categories

Growth Stocks

Growth stocks have earnings growing at a faster rate than the market average. They rarely pay dividends and investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock.

Income Stocks

Income stocks pay dividends consistently. Dividends are a portion of the company’s earnings paid to shareholders. Investors buy them for the income they generate. An established utility company is likely to be an income stock.

Value Stocks

Value stock shave a low price-to-earnings (PE) ratio, meaning they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound.

Blue-Chip Stocks

Blue-chip stocks are shares in large, well-known companies with a solid history of growth. They generally pay dividends.

Potential Benefits Of Investing In Stocks

  • Potential capital gains from owning an stock that grows in value over time
  • Potential income from dividends paid by the company
  • Potential income from dividends paid by the company

Potential Risks Of Stocks

  • Share prices for a company falling, even to zero
  • If the company goes broke, you may be the last to be paid, so you may not get your money back
  • The value of your shares will go up and down, and the dividend may vary

Buying And Selling Stocks

Researching Stocks

Before investing in a stock it’s a good idea to research the company and the stock’s performance history.

Information you should consider researching include:

Annual Reports

One of the best sources of information is a company’s annual report. Review a company’s annual report to learn about its business activities, whether it’s making a profit or loss, and the company’s strategy for the future.


Companies issuing shares are required to file a prospectus with the U.S. Securities and Exchange Commission. A prospectus is a formal legal document that gives details about the investment.

Stock Reports

There are various reports available about a stock’s performance. Ask your stock broker or investment adviser for more information.

Lastly, when you have questions or are looking to buy stocks make sure you work with Licensed Professionals and Registered Products to ensure you have all of the information that you need.