Types of Stocks
There are two main types of stocks: common and preferred. Understanding the differences can help you make better investment decisions.
Common Stocks
Represent the majority of stocks available. Shareholders have voting rights and can participate in electing the board of directors. Dividends are not guaranteed and can fluctuate.
Preferred Stocks
Shareholders have no voting rights. Dividends are typically fixed and paid before common stock dividends. Preferred shareholders have a higher claim on assets in the event of liquidation.
How Do Stocks Work?
When you own a stock, you become a shareholder. This means you have a claim on part of the company’s assets and earnings. If the company does well, the value of your stocks can increase. For example, if a tech company you invested in launches a groundbreaking new product that becomes highly popular, the company’s profits may soar, driving up the value of your stocks. On the other hand, if the company faces difficulties, the value of your stocks can decrease. For instance, if that same tech company experiences a product recall due to safety issues or posts lower-than-expected earnings, its stock price might drop. Being a shareholder means you’re directly affected by the company’s fortunes, both good and bad. This highlights the importance of researching and choosing companies with strong potential for growth and stability.
Why Do Companies Sell Stocks?
Companies sell stocks to raise capital. So, instead of taking out a loan, companies sell pieces of themselves to investors like you. Selling stocks has become an efficient way for companies to raise funds without incurring debt. When you buy a stock, you’re not just investing money; you’re getting a slice of the action. For example, a company might use the money from selling stocks to invest in cutting-edge research and development, acquire other businesses, or enter new markets. This boosts their growth potential, and if all goes well, your investment can grow right along with them.
How to Buy and Sell Stocks?
Most often, stocks are traded on stock exchanges like the Nasdaq or the New York Stock Exchange (NYSE). After a company goes public through an initial public offering (IPO), its shares become available for investors to buy and sell on these exchanges.
What are Dividends?
Some companies pay dividends, which are regular payments made to shareholders out of the company’s profits. It’s like getting a little bonus just for owning the stock. Not all companies pay dividends, but for those that do, it can be a nice perk. Dividends provide a steady income stream, which can be particularly attractive for long-term investors. Companies that consistently pay dividends are often seen as stable and reliable. Dividends are typically paid quarterly, but some companies might pay them annually or at other intervals. When considering an investment, look at the company’s dividend history to have a better understanding of the Company’s Financial Situation and commitment to returning value to shareholders.
