What are stocks, and why are they so popular these days? Here are the fundamentals. Different kinds of stocks. Stock price volatility. How to select a stock broker
In my opinion (which I’ve written extensively about in the past), there are four main groups of people who buy stocks: First, institutional investors. These are wealthy individuals, usually with money management portfolios that include mutual funds; or else, highly experienced professional investors such as financial planners, whose investments are backed by large amounts of capital. Second, retail investors. These are everyday retail investors who typically purchase their stocks in brick and mortar stores; or third, individual stockholders.
And now let’s get technical. Stocks are just shares in a company. They have rights, and are traded on major exchanges like the New York Stock Exchange, the NASDAQ, and the London Stock Exchange. Some types of stocks include common stock, preferred stock, debt securities, and foreign stocks.
Now, let’s go over how stocks represent ownership in a company. Stocks are a way for a company to say, “I want to own this stock.” When a company issues new shares to the market, all of the people who own a certain percentage of the stock receive notice of the stock holders meeting – called a company conference or shareholders’ meeting. During this meeting, they can choose to sell their shares or buy new shares. The company then uses the cash proceeds from the sale or purchase of new shares to pay its bills and make other business expenses.
How do stocks help you make money? The main advantage of investing in stocks is that they allow you to invest in a relatively safe form of investment, at least when compared to options and mutual funds. Since they are very easily traded, you don’t have to worry about fluctuations in the price, which can be risky if you aren’t paying attention to the company’s stock performance. That’s a good place to start if you want to get started in the investment game.
One disadvantage to investing in stocks is that they are more difficult to purchase than mutual funds and other kinds of securities. You can’t just drive to your local stock exchange and purchase some shares; you need to be licensed and meet other investment requirements. This can take up to a year, depending on what kind of business you’re getting involved with. It can also be difficult to liquidate your stock in a short amount of time if the company goes bankrupt, so it may be a better idea to let your money earn interest instead of rely on the fluctuating stock market. And finally, although they can be a good long-term investment, you should only use them as part of a diversified portfolio, with other stocks and bonds, real estate, commodities, and more.