Stocks
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 Risks Of Stocks
Buying And Selling Stocks
Stock Plans Through Companies
Some companies allow you to buy or sell their stock directly through them without using a broker. Some companies limit direct stock plans to employees of the company or existing shareholders. Some require minimum amounts for purchases or account levels.
Discount Or Full-Service Broker
Brokers buy and sell shares for customers for a fee, known as a commission. Many brokers run websites where you can buy stocks.
Dividend Reinvestment Plans
These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. You must sign an agreement with the company to have this done. Check with the company or your brokerage firm to see if you will be charged for this service.
Stock Funds
Stock funds are another way to buy stocks. These are a type of mutual fund that invests primarily in stocks. Stock funds are offered by investment companies and can be purchased directly from them or through a broker or adviser.
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.
Prospectus
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.