You Can Make a Lot or Lose a Lot

Many people invest their funds in the Stock Market or Bond Market.

But before investing, you need to have a clear understanding of how investing works, know the background and plans of the company or bond in which you are investing, and be prepared to invest your money for quite a while.  {This article focuses on stock market basics.  A subsequent blog will review the bond market.}

Be aware that most people who make money off the stock market do so by holding on to investments for many years, not by buying and selling quickly

By investing money in a company through a stock purchase, you will be able to share in the profits (or the losses) of the company.  While investing in the stock market can be a good way to earn money, you can also lose money if the company (or the entire stock market) does not perform well.

Stock Types

Basically, two stock types are available for investors to purchase.  Each has specific ownership rights and privileges.

Common Stock represents the largest amount of stock issued.  Buyers receive a level of ownership, share the dividends, and may vote on Board members who oversee management.

Preferred Stock allows some ownership, but limited (if any) voting rights.  Investors typically receive a fixed dividend, but should bankruptcy occur, preferred shareholders are paid ahead of the common shareholder.

Stock Categories

Blue-Chip Stocks – Large companies with long term evidence of solid profits and consistent dividend payments; usually considered the “safest” in which to invest.  These companies are found in the Dow Jones Industrial Average or the S&P 500.

Income Stocks – Stable operations which pay substantial dividends on a regular basis over a long period of time (e.g. energy and utility companies).

Value Stocks – Typically underpriced in comparison to similar companies in the market, which means there are issues to consider (e.g. heavy debt, erratic cash flow).

Growth Stocks – Companies with profits that are rising rapidly, which is reflected in the uptick of the stock price. Usually little or no dividends are paid, but the ongoing growth often keeps stockholders in the game.  Technology companies often fall into this category.

Now that you are familiar with stock market basics and some terminology, if you wish to pursue placing your hard-earned money in company stocks, please speak with certified financial advisors who are experts in this field.

For general information regarding the Bond Market, please review the article entitled “The Bond Market – Definitions & Risks” found in this blog.

Remember, free financial management and budgeting tools are also available at www.setttleitsoft.com .