You may have heard the words ‘stock’ or ‘share’, but might not fully understand what the words mean. The popular misconception is that if you own stock in the company, you own part of that company. This is not strictly true. When you have stock, you own shares issued by that company.
This means that you do not own company property, simply shares in the company. If you own a lot, or majority, of shares in a company, then you may be able to vote at shareholders meetings. This does not mean you own the majority of the company, or that you can choose how it is run etc.
Stock – What Does It Mean for Me?
Companies issue shares to raise capital, usually for new projects to increase the business. A company can choose to issue stock instead of borrowing money from a bank.
You may buy stock directly from the company or from another shareholder. Although owning stock doesn’t mean you own part of the company, it does mean you are eligible for dividends. This is a portion of the company profits that is issued to shareholders.
You can choose to sell your shares on, or keep them for dividend returns. Many people trade stock, buying at a low price and selling at a higher price for a profit.
The dividends from shares are not usually the main incentive for investors, and not all shares pay dividends. The potential profit from trading stock is the most common attraction of buying stock.
Buying Stock
You may have decided to invest in the stock market as part of your financial planning. While returns are not guaranteed, there is potential for big gains if you buy stock at the right time.
The most common way to buy stock is through a broker account. This is a third party that will buy stock from the market on your behalf.
There are many brokers that offer services to help you choose stock to buy. There are accounts that allow you to buy and sell stock for a small fee per transaction. You can pick and choose your own stock, or take advantage of the broker service that will give advice on what to buy and when.
These accounts may have a monthly fee for using them, or there could be a charge per trade. You will need to decide if you want to trade in small or large value stocks. The length of your investment should be considered too. Depending on the company you choose, and the amount you invest, it could take some time before you see an increase in your initial investment.
The stock market has long been an investment choice for many people that want to gain financial freedom. While stock can go down as well as up, researching carefully and choosing the right stock can result in the gains you are looking for.
Following financial blogs and successful investors, and looking at previous market trends, will help you make an informed decision on the best stock to invest in.