Stocks is perhaps the most well known of all types of investments and one of the most suitable for most investors. Stocks is the best way to save for the future. Quality stocks are low risk if you invest long term and have historically given a very good average return.
What is stocks?
Stocks allow you to buy a small piece of the company. A stock company (corporation) is a company that has a lot of different owners that share the risk and opportunities of running a company. Each owner might own a large or small piece of the company and is entitled to dividend and say in accordance with the number of shares they own. The more shares you own. The larger part of the profit you will be entitled to. You will also have more votes at the shareholders meeting.
Stocks have played a very important historical role as they allowed people to share financial risk and invest in projects that where too expensive or too risky for any single investor to be able to do by themselves. Stocks made everything from rail roads to the panama canal possible. Without them it would have been hard to build out the rail roads and impossible to build the canal.
What is the difference between stocks and shares?
The stock is a company that is traded on the stock market. Amazon is an example of a stock you can trade on the open market. If you want to buy that stock then you will buy a certain number of shares of that stock. You might by a 100 units (shares) of Amazon stock.
Stock is the whole, shares are the individual units of that stock.
How do I trade with stocks
Trading with stocks are easy. All you have to do is to open an account with a stock broker and deposit money into the account. Once you have a brokerage account with money in it then it is just like shopping. You browse to the stock you want and purchase the number of shares you want. If you want to sell a stock then you find it in your portfolio and sell it from there. Trading stock is no harder than shopping on Amazon.
There are a number of more advanced functions that we recommend that you learn how to use but you do not have to use them to trade stocks.
Are stocks a safe investment?
That depends on which stocks you invest in and how long your investment horizon is. There are plenty of high risk stocks such as many penny stock. There are also plenty of low risk stocks such as blue chip stock. You can build a low risk stock portfolio if you want to and if you do then stocks are one of the safest investments you can make. You will always risk losing money.
Short term investments in the stock market are riskier than long term investments. We recommend against investing money you need within 2 years in the stock market. If you can allow your money to stay in the market for longer than that then the stock markets is a great place to invest.
Which stocks should I invest in?
Only you can decide which stocks to invest in and we do not recommend individual stock. Generally we recommend that you avoid investing more than a very small part of your portfolio in high risk investments and penny stocks. We recommend that you invest primarily in blue chip and dividend stocks.
What are dividend stocks?
Dividend stocks are stocks that distribute apart of their profit among their shareholders as dividend payments. All stocks that pay dividend are dividend stocks but the term is often used to refer to stock that offer a high and stable dividend. Stock that has paid dividends for many years and that are known for increasing their dividend payments year after year.
Dividend stocks are very good if you are investing for your retirement as they allow you to build a portfolio that provides you with an income without the need to sell stocks. A dividend portfolio will pay you a higher yield year after year. You never have to worry if your retirement fund will last you your life out because it keeps growing as you live of the dividends.