Stock represents part ownership of a corporation or company, and is a common component of many retirement portfolios. A stock’s value rises or falls based on the market’s appraisal of that company’s worth at a given time. This appraisal can be influenced by objectively measurable factors like the business environment and economic trends, but it’s often driven by investor emotion. As a result, the stock price can be a roller coaster for individual investors.
A company issues stock to raise funds, and shares represent fractional ownership of the corporation. In some cases, companies may issue preferred stocks, which have a higher priority over common stock in the event of bankruptcy. Corporations are a distinct type of legal entity, and they can own property, file taxes, and borrow money, among other things. Shareholders, or owners of a stock, also receive dividends (a portion of the company’s profits), and they typically vote at shareholder meetings.
While the primary reason to invest in stocks is their potential for growth, you can also use them as an income source by purchasing a company that pays out regular dividends. These are a small amount of money paid to shareholders based on the company’s profit, and they can be used as a cash supplement or to help fund retirement.
When choosing stocks, it’s important to do your homework and research a company before buying its shares. There are thousands of different companies to choose from, and each one has a different performance history. For example, cyclical stocks like luxury goods and travel companies tend to decline during recessions, but their demand can rebound quickly during strong economies. Non-cyclical stocks, on the other hand, like grocery chains and banks are less susceptible to economic fluctuations.
Stocks are easy to buy and sell, which makes them a great addition to your investing toolbox. However, you should never invest money that you could not afford to lose. Stocks have a long track record of providing higher returns than other investments, such as bonds and cash alternatives.
The simplest way to purchase shares is to open an investment account with your broker, financial planner, or online brokerage firm. Once you have an account, you can select the ticker symbols of the stocks you want to buy and enter your order. You can place a market order, which tells your broker to buy the stock at its current best price, or you can place a limit order to set a maximum purchase price.
It’s important to keep in mind that no investment strategy works all the time, and that the value of your stocks will rise or fall over time. The key is to stay invested for the long term, and to rebalance your stock allocation from time to time. You should rebalance your stock allocation to maintain proper diversification between sectors, to reduce the overall level of risk in your portfolio, and to reflect any significant changes in your personal circumstances or portfolio objectives.
