What Are Stocks
Stocks are a type of security that gives stockholders a share of ownership in a company
Companies sell shares typically to gain money to grow the company. This is called the public offering (IPO). After the IPO stockholders can resell shares on the stock market
Stock prices rise or fall and are typically driven by expectations of the corporation’s earnings or profits
Types Of Stocks
There are two kinds of stocks common stock and preferred stock
Common Stocks
Common stock entitles owners to vote at shareholder meetings and receive dividends
Preferred Stocks
Preferred stockholders usually don’t have voting rights but they receive dividend payments before common stockholders do and have priority over common stockholders if the company goes bankrupt and its assets are liquidated
Growth Stocks
Growth stocks have earnings growing at a faster rate than the market average. They rarely pay dividends. Investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock
Income Stocks
Income stocks pay dividends consistently. Dividends are a portion of the company’s earnings paid to shareholders. Investors buy them for the income they generate. An established utility company is likely to be an income stock
Value Stocks
Value stocks have a price-to-earnings (PE) ratio meaning they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound
Blue-Chip Stocks
Blue chip stocks are shares in well known companies with a solid history of growth. They generally pay dividends
Potential Benefits Of Investing In Stocks
- The potential benefits of investing in stocks include
- Potential capital gains from owning a stock that grows in value over time
- income from dividends paid by the company
- Lower tax rates on long-term capital gains
- Potential Risks Of Stocks
- The potential risks of investing in stocks include
- Share prices for a company falling to zero
- If the company goes broke you may be the last to be paid so you may not get your money back
The value of your shares will go up and down and the dividend may vary
How To Buy Stocks
The following are the most common ways to buy stocks
Direct Stock Plans Through Companies
Some companies allow you to buy or sell their stock directly through them without using a broker. Some companies limit stock plans to employees of the company or existing shareholders. Some require amounts for purchases or account levels
Dividend Reinvestment Plans
These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. You must sign an agreement with the company to have this done. Check with the company or your brokerage firm to see if you will be charged for this service
Discount Or Full-Service Broker
Brokers buy and sell shares for customers for a fee, known as a commission. Many brokers run websites where you can buy stocks
Stock Funds
Stock funds are another way to buy stocks. These are a type of fund that invests primarily in stocks. Stock funds are offered by investment companies and can be purchased directly from them or through a broker or adviser
Researching Stocks
Before investing in a stock it’s an idea to research the company and the stock’s performance history
Information you should consider researching includes
Annual Reports
One of the best sources of information is a companys annual report. Review a company’s report to learn about its business activities whether it’s making a profit or loss and the company’s strategy for the future
Prospectus
Companies that are issuing shares are required to file a prospectus with the US. Securities and Exchange Commission. A prospectus is a legal document that gives you details about the investment
Stock Reports
There are various reports available about a stock’s performance. Ask your stock broker or investment adviser for more information
Work With Licensed Professionals and Registered Products
Investment professionals need to be licensed with the Washington Department of Financial Institutions (DFI). In addition most investment products sold need to be registered with DFI. To check the licensing status and to find out if there are any complaints against an investment investment product contact the Washington State Department of Financial Institutions at 1.877.RING DFI (746-4334)
If you live outside of Washington state contact your state securities regulator
FAQs
What are stocks?
Stocks are like being a part of a company. When you buy stocks you basically own a piece of that company.
Is stock investing risky?
Investing in stocks can be a little scary because you might lose some money.. If you put your money in different types of stocks it can help make it safer.
How money do I need to start investing in stocks?
You do not need a lot of money to start investing in stocks. You can start with an amount of money.
Can beginners invest in stocks?
Yes anyone can start investing in stocks if they have the information, about stocks.
Why should I invest in stocks?
Investing in stocks is an idea because stocks can help your money grow over time. Investing in stocks can make you richer if you are patient and know what you are doing with your stocks.
