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Investments Stocks

One of the most important advantage of equity investments, which is the main reason for such a conclusion, is that they give far better returns than other traditional investments such as investment in deposits or gold.

Stocks

People's interest in the stock market has grown significantly over the last few decades. What was once considered a toy for the rich has now become an investment of choice for financial gains. This growing demand combined with the advancement in trading technology has opened up the markets, so almost everyone can own stocks.

What are Stocks?

Stocks can be defined as a share in the ownership of a company. They represent a claim in the company's earnings and assets. As an investor acquires more stocks, his/her ownership stake in the company becomes higher. To put it simply, shares, equities, or stocks, all mean the same thing.

Types of Stocks:

1. Common Stock: Common stocks represent ownership in a company as well as a claim (dividends) in a portion of the profits. Here, the investors get 1 vote per share in order to elect board members to oversee major decisions made by the management.

Over a longer term, common stocks yield higher returns as compared to most other investments. However, higher returns come at a cost, as common stocks entail maximum risk exposure. In case a company goes bankrupt and liquidates, shareholders don't receive their money until the creditors and bondholders are paid off.

2. Preferred Stock: Preferred stocks represent some level of ownership in the company, and generally don't come with voting rights. Voting rights may vary depending upon the company. With preferred stocks, investors are guaranteed a fixed dividend for life, as compared to common stocks, which have variable dividends that aren't guaranteed.

A major advantage with these stocks is that preferred shareholders are paid before common shareholders, in case the company goes bankrupt or liquidates. Some investors consider preferred stocks to be more like a debt than equity.

How is Trading Done? Stocks are traded at exchanges. These are places where sellers and buyers meet and decide on prices. Some exchanges are at physical locations and others are virtual (network of computers where trading is done electronically). The stock market facilitates the exchange of securities between sellers and buyers, reducing the risks of investment. It is a sophisticated market that links potential buyers and sellers.

Buying Stocks: The most common way to buy stocks is through brokerage. Brokerages come in 2 forms, full-service brokerage and discount brokerage. Full-service brokerage offers expert advice that can manage your account for you, but such a brokerage charge high. Discount brokerage offers little personal attention, but is a lot cheaper.

Earlier, only the wealthy could afford to hire a broker because only full-service brokers were available and this was quite expensive. With the advent of the Internet came online discount brokers, which made it affordable for almost anybody to invest in the stock market.

Risk: People think of stocks to be a magic answer to instant wealth, without risks. However, though stocks can create massive amounts of income, they aren't without risks. Some companies pay dividends, but there are many who don't. Any stock could go bankrupt, in which case an investment is worth nothing. However, there is also a brighter side. Greater risks can provide greater returns on your investment.

Stocks

People's interest in the stock market has grown significantly over the last few decades. What was once considered a toy for the rich has now become an investment of choice for financial gains. This growing demand combined with the advancement in trading technology has opened up the markets, so almost everyone can own stocks.

What are Stocks?

Stocks can be defined as a share in the ownership of a company. They represent a claim in the company's earnings and assets. As an investor acquires more stocks, his/her ownership stake in the company becomes higher. To put it simply, shares, equities, or stocks, all mean the same thing.

Types of Stocks:

1. Common Stock: Common stocks represent ownership in a company as well as a claim (dividends) in a portion of the profits. Here, the investors get 1 vote per share in order to elect board members to oversee major decisions made by the management.

Over a longer term, common stocks yield higher returns as compared to most other investments. However, higher returns come at a cost, as common stocks entail maximum risk exposure. In case a company goes bankrupt and liquidates, shareholders don't receive their money until the creditors and bondholders are paid off.

2. Preferred Stock: Preferred stocks represent some level of ownership in the company, and generally don't come with voting rights. Voting rights may vary depending upon the company. With preferred stocks, investors are guaranteed a fixed dividend for life, as compared to common stocks, which have variable dividends that aren't guaranteed.

A major advantage with these stocks is that preferred shareholders are paid before common shareholders, in case the company goes bankrupt or liquidates. Some investors consider preferred stocks to be more like a debt than equity.

How is Trading Done? Stocks are traded at exchanges. These are places where sellers and buyers meet and decide on prices. Some exchanges are at physical locations and others are virtual (network of computers where trading is done electronically). The stock market facilitates the exchange of securities between sellers and buyers, reducing the risks of investment. It is a sophisticated market that links potential buyers and sellers.

Buying Stocks: The most common way to buy stocks is through brokerage. Brokerages come in 2 forms, full-service brokerage and discount brokerage. Full-service brokerage offers expert advice that can manage your account for you, but such a brokerage charge high. Discount brokerage offers little personal attention, but is a lot cheaper.

Earlier, only the wealthy could afford to hire a broker because only full-service brokers were available and this was quite expensive. With the advent of the Internet came online discount brokers, which made it affordable for almost anybody to invest in the stock market.

Risk: People think of stocks to be a magic answer to instant wealth, without risks. However, though stocks can create massive amounts of income, they aren't without risks. Some companies pay dividends, but there are many who don't. Any stock could go bankrupt, in which case an investment is worth nothing. However, there is also a brighter side. Greater risks can provide greater returns on your investment.

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