Stocks-Different kinds and how they work. -Finance-

The stock market is where many individuals choose to invest or secure their money. Stocks are not just for the wealthy and affluent, stocks are for everybody. Stocks are just one type of investment, other types of investments include(not limited to): Bonds, Annuities, Certificate of Deposits, Money Market Funds, Commodities, REIT(Real Estate Investment Trusts). With all these forms of investment, stocks seem to remain the most popular.

Stocks essentially offer investors a share of profits. Stocks use investors money on company expenditures and in return share profits(or losses haha) with those who invest.

Hypothetical Example

Think of it like this, if I start a car company I will need money to purchase materials. I will use your money to help me attain such materials, and when I sell cars I will return your money plus some for helping me get rolling. This example is not very practical it is just used as an example to paint a picture for those new to stocks.

Dividends

Dividends are paid to investors and can range greatly in percentage. An example of a dividend could be 3% of invested funds. Dividends are simply profit sharing, it is what you are entitled to for investing your money into a given company. Investors like dividends because banks normally don’t pay anywhere near close to 3% in interest, dividends are stocks form of “interest”. Some stocks offer stock dividends and some offer cash dividends. Stock dividends pay the percentage out in additional shares and cash dividends pay the percentage out in cash. Both have their pros and cons: stock dividends are not taxable until sold(yet they dilute the stock share by increasing shares), cash dividends offer immediate cash to investors but are taxed as they are paid out.

Food for thought

Keep in mind many banks only insure certain amounts of money, thus if you invest more than said amount and something happens, your money is only insured up to a certain point. In stocks, you own a portion of that company thru your shares, many people find it safer to own shares of a company in comparison to keeping money in the bank.

Stock Growth

Aside from dividends, investors can make money(or loose money) based on the performance of a company. Performance is determined by a variety of factors, but mainly by profit. If a company performs well, your stock shares could increase in value. If you own 100 shares at 1 dollar a share, and the company grows exponentially, those shares could be worth 3 dollars a share tripling your investment. Same principle applies to companies performing poorly, you are liable to loose money(share value) as well.

Common Stock

Common Stocks are shares that(when purchased) allow owners vote at company meetings. Common stocks offer dividends, but investors are less secure, in comparison to preferred stocks, if the company tanks.

Preferred Stock

Preferred Stock gives investors no voting rights(company meetings) but they do offer dividends and have priority in disasters. This means if the company tanks preferred stock owners will be the first to receive some money back.

How do I get my money back

The great thing about stocks is most publicly trades stocks offer liquidity at any time. This means if your stock share value increases, you can sell it immediately and receive your funds to use or invest in other options.

High Risk Stocks

Some people invest little money with hopes of striking gold. High risk stocks are often not secured by the SEC and pose great risks to investors, of course the potential growth is large as well. Some high risk stocks include penny stocks, and stocks from start up companies. I have no experience with these stocks but I would be very careful when investing in such stocks.

Thoughts

Do you have any advice from your stock experience? Any feedback or suggestions? Type below or message me and we can discuss investing!

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