Investing in stocks is a smart way to grow your portfolio and reach your financial goals. A share of stock represents fractional ownership of a company and can increase in value over time.
Buying stock is similar to owning a piece of real estate or a debt instrument, but it’s generally easier to do and less risky than both. A stock is also much more liquid than a real estate investment, making it easier to sell when you’re ready.
When a company is publicly traded, its shareholders can buy and sell shares of its common stock on the open market. This is called a public offering and it’s a good way for companies to raise money.
The price of a stock is the market’s opinion about its worth at a certain point in time, and it changes based on many factors that aren’t necessarily related to the performance of the company itself. Some of these factors include revenue and earnings growth, industry trends, liquidity and sentiment.
Investors may make money by purchasing stocks and holding them for long periods of time, or they can trade the prices up and down quickly to take advantage of short-term price fluctuations. While both trading strategies are popular, they aren’t for everyone.
In order to get the best possible return on a stock, you should select one that has the potential for strong growth. A company’s stock price will typically increase when the company performs well and decrease when the company fails to meet expectations or is struggling to stay afloat.
Dividends are another way to gain value from investing in a company’s stock. Most public companies make quarterly dividend payments, and these can add to your portfolio’s overall value.
Preferred stocks are another type of stock that can be purchased by investors and give them some rights over common stockholders, like the right to vote at shareholder meetings and receive dividends before they do. In addition, preferred stockholders typically have higher interest rates than common stockholders do and are more likely to have their shares returned if the company goes out of business.
Choosing a company to invest in depends on your own objectives, financial situation and risk tolerance. You might start by looking at a few different stocks or funds and discuss them with a financial advisor to determine the right fit for your unique needs.
Stocks are not a set-it-and-forget-it type of investment, so it’s important to regularly check in with your investments. That means taking a look at your quarterly earnings reports, reviewing the company’s balance sheet and watching for relevant news or events that may affect the stock.
How Stocks Are Classified
There are several classification systems for stocks, with each system differing slightly based on company size and where the company is located. For example, there are large-cap stocks, mid-cap stocks and small-cap stocks.
You’ll find many types of equity, including common stock, preferred stock and convertible securities (shares that can be converted into other kinds of securities). Each category has its own distinct characteristics.