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Investing in Stocks and the Stockmarket

Stocks (also referred to as ‘shares) ’are essentially part ownership in a company. You ‘buy’ a piece of the company and share in a piece of the profits in the form of dividends. So if the company you’ve invested in makes money, so do you. But if the company loses money – so can you. And worse still, if the company goes bankrupt, you can lose your investment altogether.

So investing in stocks is high risk, but typically makes a good return in the long term if you pick a good diverse range of stocks.

And the key here is diversification. Afterall, if you’ve put all your money into one company and it goes belly up because of strong competition, then you’ve lost out. But if you’ve invested in the ‘competition’ too – then at least you’ve made some good returns there.

Stocks can be referred to as:

  • Common Stock: the basic definition that refers to owning equity in a company.
  • Initial Public Offering: the first time a stock is available to be sold to the public, generally to help generate assets to finance the company's growth.
  • Growth Stock: stock of a company whose management focuses on growth through the reinvestment of any earnings rather than paying them out in the form of dividends.
  • Preferred Stock: a special category of higher priced company stock that typically pays its holders a higher dividend than common stock and affords them certain voting privileges.
  • Value Stock: also known as under-valued stocks that trade at a lower price than the company's reputation, earnings outlook, and financial situation would seem to merit. Most value stocks pay out greater profits to shareholders in the form of dividends than do growth stocks.
Whatever type of stock you decide to purchase, it’s critical that you study every company in which you buy stock - carefully. You should know its products or services, its market, and whether or not it has a sound balance sheet, positive cash flow, and competent management. You should also consider what analysts predict in earnings for the company's future.

If you do thorough research, make careful selections, and patiently ride out market volatility for at least 5-10 years, chances are good that your stock portfolio choices will reward you with more substantial returns than other investment vehicles.

And stocks WILL fluctuate up and down. The important thing is to know when to ride out the storm – and maybe even purchase some more shares at rock-bottom prices - and when it’s time to sell.

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We are not certified financial planners or advisors. The information in this website is general information only. Always consult a licensed financial planner before making any finance or investment decision.

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