You may have heard of the word stock in the news or in casual conversation but what exactly is a stock? A stock, also known as equity, is a unit of ownership in a company. When someone purchases a stock in a company, they become a shareholder and the small piece they own is called a share. People buy stocks in hopes that the business will succeed so when the company does well, its stock owners share in those profits. Investors can buy stocks by opening an account with a stockbroker. To diversify where investors invest their money, they can invest in something called stock funds. An example of a stock fund is the S&P 500.
There are two ways an investor can make returns on their investment: capital gains and dividends. Capital gain is the profit you make when you sell your stock at a greater value than what you had purchased it for. Dividends are regular payments to shareholders. Each company can set its own dividend schedule but a quarterly payout is the most common. This is why dividend stocks are most attractive to people who are nearing retirement or who already are in retirement.
What are some types of stocks? To break it down there are common stocks and preferred stocks. Common stocks, as said in the name, are the most common stocks for shareholders to own. They typically receive quarterly dividends and voting rights however these dividends fluctuate and are not guaranteed. Preferred stocks, on the other hand, pay a higher fixed dividend than what common stock would pay but their share prices don’t appreciate as much as common stock do. The preferred stock gets paid its dividend before the common stock even in the event of bankruptcy.
Stocks are a great way to invest your money to further grow your capital as it allows you to invest at your own risk and comfort.
Mission Saksham 