Investing in Stocks
InvestingOnline.com
5/07/2018, 08:14What are Stocks?
When people here the word “stocks” they immediately think of investing, trading or Wall Street. They are right to think that, but one must understand exactly what a stock is if they wish to invest in or trade them. A stock, also known as “capital stock”, is the term used to represent the residual assets or equity of a company. A company’s stock is traded on a public stock exchange market and is divided and broken up into shares. Shares are what investors buy and sell or trade, and all of the shares of a company make up the company’s stock.
Investing in stocks is one of the most common types of investing, along with cash, bonds, and property investments. However, investing in stocks is different from the other 3 investment types as a trader only owns a fraction of the asset they’re investing in, (a share). Essentially, shares allow a trader to own a portion of a company they want to invest in, resulting in them owning a proportion of the company’s net worth or stock.
As a trader, you can choose to own shares in a single company’s stock, multiple companies stock, or you can invest in a single collective investment fund which pools your money and others for numerous shares of different company stocks. These funds are managed by an account manager and take the responsibility of investing off your hands.
How to Invest/Trade Stocks
Stocks are traded on stock exchanges in which investors and traders buy and sell shares of the company’s stock on the stock exchange. This process is facilitated in a few ways, one of which is through an online stock trading broker.
For an investor/trader to make money off investing in stocks, they must purchase a number of shares in a company’s stock that they believe is going to grow and become more valuable. If the company’s net worth increases, so does the value of the stock and your shares.
Another way to make money off investing in stocks is to buy shares that pay dividends. Dividends are a portion of the companies profits each year, and can be paid out monthly, quarterly, or yearly. Stocks that pay dividends are often large and established companies who have little room for growth. Shares with smaller companies who do not pay dividends have a greater chance of large growth but are also riskier. Therefore, it is up to the investors risk level for how they want to invest.
Another way to invest in a company’s stock is to join an investment fund. Investment funds allow an investor to profit from investing in numerous stocks along with other people. These funds are managed by a fund manager, and the investor does not need to worry about anything.
Advantages of Investing in Stocks
Investing in stocks has numerous advantages for both experienced and inexperienced investors. It is not overly complicated and is easy to understand, which is why the trading of stocks is one of the most popular investment markets. See below, a comprehensive list of the various advantages.
Investment Gains
An obvious advantage is the investment gains there are to be made. Generally, over time the stock market continues to increase in value, thus paying out gains in the shares you buy.
Simplicity
Anyone can invest in the stock market and choose good stocks to invest in. It’s simple, if you like a company and believe they will do well in the future, you can buy shares of that company’s stock and profit later down the road.
Dividend Income
For stocks that pay dividends, it’s a great way to make passive income, or to simply reinvest into buying more shares so that you can make more dividends.
Diversification
Investing in stocks is a good way to diversify your investment portfolio because there is such a wide range of companies that serve different markets. Therefore, you can essentially invest in numerous markets, thus diversifying your portfolio.
Voting Rights
When you invest in a company’s stock, you essentially own a portion of the company (a share). This enables you to place votes on certain aspects of the company such as board members.
