What is Stock?
How do you grow your money if you’re an investor? It’s simple. You buy the stock of the company that can grow in time. A stock is an investment. If you buy the stocks of the company, you buy a small piece of that company. We call it as the share.
Thus, you become a shareholder. Your stocks represent your ownership share in the company. If the company’s stocks grow, you can expect that your stock would grow as well. You can even sell a stock gain profit.
In public companies, the stocks are sold through a stock market exchange. Investors are open to buy and sell the stocks among themselves. But, the stock exchanges observe the supply and demand of a company that might affect the stock price.
Stock Prices Fluctuate
If you’re the investor, you expect stock prices aren’t always the same. Stock price fluctuates during the day. You would hope that the price increase so that the stock would increase in value as well.
But, let’s face it – not all company’s stock price increase as you expect it. Some companies can lose their value or close eventually. When this happens, an investor might lose part or whole or his or investment.
So, a wise investor should spread his or her money in different companies. They can buy stocks in various companies rather than owning shares from a single company. In this way, investors don’t lose their stocks in case a company closes.
Let’s say you have 401(k). You have stocks, but you don’t realize it. You can gain more stocks from retirement plans sponsored by employers. These plans invest in mutual funds that hold large company stocks.
How Do Investors Make Money in Stocks?
Do you want to take risks so that you can grow your money? Well, your stocks can give you big rewards than you expect, but you need to take risks. Stocks are risky than any investment but imagine the high rewards you would gain.
How do investors make a profit out of stocks? Here are two ways they do it:
Stock Ownership and Selling
A stock’s price could go up during the time an investor owns the stock. Then, the investor could sell his or her stock for more than the price he or she paid for it.
Investors make money out of stocks through dividends. Shareholders can gain payments in dividends that could be higher than they expect. Not all stocks give you dividends, but some stocks offer dividends every quarter.
What if you want to buy individual stocks? Well, an online broker offers you individual stocks that you can buy. Online brokers charge commissions for stock trade differently. So, it’s essential for you to talk to the online broker so that you know the commissions they offer.
For first time investors, knowing more stocks is essential. A stock purchase is risky, but you can expect more rewards if the stocks increase. If you want to make wise decisions when it comes to buying, there are essential things you should know such as the following:
Investors in the Long Term Buy and Hold Stocks
If you’re a good investor, you own different stocks that you can hold or sell in the future. You would also hold on to your stocks through the good and bad times.
It Takes Time to Invest in Individual Stocks
Stock buying requires research on the part of the investor. You need to know and observe how a company works and how does it handle its finances.
Most investors want to save time to buy stocks, so they invest stocks through equity funds and index funds. In using these funds, you can buy stocks in a fast and single transaction. As the investor, you can gain fast diversification and deduction to the additional tasks you would do.
Hence, you have assurance and security that your money would grow in time. The individual stocks would give you big rewards that you never expect would come.
Investors Might Own Common or the Preferred Stocks
Investors in a public company, you would usually own common stock. Common stocks could give you dividends, but it’s not guaranteed to give you big profits. Also, the dividend amount you would get isn’t fixed so you’re not sure if you would get the amount you expect.
When it comes to preferred stocks, the dividends are fixed. It means that you can gain high income from the stocks every year. The preferred stockholders stand out in investment, unlike the common stockholders.
The preferred stock owners expect a large amount of profit since the dividends are fixed. Preferred stock owners are sure about the payment they would get each year. It makes them stand out than the common stock owners when it comes to company earnings.
What about the excess cash from the earnings?
Well, the dividends pay the preferred stock owners first. The common stock owners receive the payment after the preferred stock owners. In the company goes bankrupt, the preferred stock owners receive the liquidation of the assets first then the common stock owners.
A stock provides you with the assurance that your money would grow. It’s wise for most investors to buy stocks from different companies so that their income wouldn’t be affected in case the company closes. If you invest in a single company, you might lose part or your whole stock when the company loses value.
You observe the commissions of on online stock brokers before you buy stocks from them. In this way, you wouldn’t face any hassles in buying the stocks.
Also, you take note of the common and preferred stocks in the company. If you want to stand out in the company, the preferred stocks are an excellent choice for you. Preferred stock owners can expect fixed payments, unlike the common stock owners.
If the company closes, you have big chances to gain high earnings from the liquidation assets of the company. Investors also need to take significant risks if they want to gain big rewards from buying stocks from different companies. Why? In taking risks, they can become successful!