Stocks: what they are, the different types and how to invest

Hoard your money the traditional way saving account It’s a great way to build a nice hedge fund, but it won’t give your money a chance to work double and multiply. One way to help your money grow over time is to invest in the stock market.

Listen to us—invest in the stock market It sounds daunting if you’ve never done it before, but it can also be one of the best ways to make money for you. Here’s a rundown of everything you need to know about stocks and how you can start investing.

What are stocks?

Stocks are assets that represent ownership in a company.

Companies issue shares as a way for investors to own equity in their company. In return, these companies raise additional capital from the sale of shares to finance key projects or business expansion.

As a company’s value increases, so does the value of a shareholder’s stock, giving investors the opportunity to build wealth as their portfolio grows. But it’s not always seamless. You can expect many ups and downs when investing in the stock market.

“U.S. equities, represented by the S&P 500 index, have returned historically average annual returns of around 11,” said Kevin Mahn, president and chief investment officer of Hennion & Walsh Asset Management. 88% from its founding in 1957 through the end of 2021,” said Kevin Mahn, president and chief investment officer at Hennion & Walsh Asset Management. “However, these returns are not consistent and come with varying degrees of risk consistent with different economic cycles and stock markets.”

Understanding how stocks work

Stocks are bought and sold on stock exchanges, which act as intermediaries between investors and companies. Stock exchanges facilitate transactions through which investors can buy and sell stocks, bonds, commodities and other securities. asset.

In the US, the two major stock exchanges are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations, also known as NASDAQ.

When choosing where to invest their money, investors buy stock in a company they believe will be successful. “[Stocks] give [investors] Michael Wang, CEO and Founder at Prometheus Alternative Investments, said: “For some, this means investing in stocks of companies that align with their beliefs, for example. like strong ESG [environmental, social, and governance] effort, or a particular cause the company works with. “

When a company does well, investors receive a return in the form of dividends or capital gains. Dividends are periodic payments that a company pays to shareholders when it earns profits. Capital gain is any profit that stock owners make from selling their stock for more than the original price they bought it for.

What are the different types of stocks?

Not all stocks are created equal. They usually fall into one of two categories: common stock and preferred stock. They work similarly, but there are a few minor differences between the two:

  1. Voting right: Common shareholders have the right to vote on matters related to company policy, board decisions, mergers, acquisitions, and more. Preference shareholders are not usually granted the same rights.
  2. Dividend: Both types of shares pay dividends, however, preferred stock usually pays a fixed dividend to shareholders, while common stock is volatile. And, if the company files for bankruptcy, preferred stockholders are paid a higher dividend and are paid before common stockholders.

How do I buy stocks?

The easiest way to invest in stocks is through an online brokerage account. This is an account offered by investment firms that you can put money in and use to start buying assets and building your portfolio.

Opening an account will require you to provide some personal information, such as: Social Security number, name, address, phone number, driver’s license number and other identifying information. Along with that, you may be asked to answer a number of questions about your income, employment status, investment goals, and risk tolerance.

Some key factors to consider when choosing a brokerage account:

  • Fee: Every brokerage account has a fee structure. You may be charged fees for receiving account statements, transaction processing, account maintenance, inactivity fees, etc. Therefore, before you sign up for an account, you should take some time to review these fees. and compare with other brokerage accounts to determine which option will benefit you the most with the lowest cost.
  • Minimum account: Certain accounts are free to open and others require a minimum opening deposit of thousands. Consider how much you are willing to invest before choosing an account.
  • Investment style: Being an active or passive investor can determine which brokerage firm is right for you. Some brokerages will offer in-person or over-the-phone service, with a broker that can build, diversify and maintain a portfolio for you based on your investment goals and acceptability. take your risk. However, these more personalized services may cost you extra. If you’re looking to take a more hands-on approach, you might want to consider having a robo advisor Automatically build and manage your portfolio. Others will allow you to get in the driver’s seat and manage your own account and thus may be more affordable.

“Investors should consider a variety of factors including but not limited to the company’s history, the experience of its advisors, technology and reporting infrastructure, the company’s commitment to service. existing customers, product categories and solutions, Mahn said.

Once you’ve opened and funded your account, you’ll need to do some research on the companies you’re thinking of investing in.

“It is important to consider the fundamentals of a company [like] Wang said. “The track record and credibility of the management team, and an assessment of whether the company is an attractive buyer at current valuations.”

Once you’ve decided where you want to deposit your money, you’ll place an order. This tells your broker what you want to invest in, how many shares you want to buy, and at what price. Some orders are executed immediately, others take longer depending on whether you are waiting for the stock to reach a certain price before the order is executed.

There are alternative paths you can take to investing in stocks. One way is to buy shares directly from a company, without using a broker, through a direct stock package (DSP). This cuts down on some of the costs you may incur when using a broker, but may require you to be employed by the company or already own shares in that company.

There are several ways to invest in stocks, and you don’t have to save a certain amount before you can put your money in the market. But understanding how stocks work and the investment options available to you is key.

“Stocks can be used to help meet a certain investor’s growth or even income goals in the case of a dividend paying stock,” says Mahn. “However, investing in stocks comes with unique risks that need to be considered and understood before considering any investment.”

DISCLOSURE OF EDUCATION: The advice, opinions or ratings in this article are Fortune tips only editorial group. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties.


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