Investing in Stocks

A stock is a share in a publicly traded company. Companies sell stocks to raise money for expansion, new products or other initiatives. The price of a stock fluctuates in response to supply and demand.

Stocks are considered long-term investments, and the best ones often have positive net income in at least four of the past five years. The criteria helps weed out startups and other riskier businesses that may experience temporary unprofitability during COVID-19 economic shutdowns in 2020. The criteria also looks for companies that have a relatively easy-to-understand business model. This helps beginners avoid getting tripped up by cutting-edge technology, advanced biotechnology or complex finance fields, where the knowledge base can be challenging for novice investors to navigate.

The advantage of investing in stocks is that they tend to rise in tandem with the economy, providing investors with an opportunity for portfolio growth in line with overall economic expansion. However, a stock’s value can decline as well, so it’s important to diversify with other investments and to monitor a portfolio regularly for signs of trouble.

Another advantage of individual stocks ownership is that the costs to buy and sell a stock are typically lower than those for other assets like mutual funds and exchange-traded funds. For example, many national discount brokerages allow you to purchase and sell individual shares commission-free. Some individual investors focus on fundamental analysis, researching a stock’s market history and business forecast to try to predict future prices. Others use technical analysis, studying a stock’s chart patterns to attempt to predict future movements in the price.

Investors who own stocks have rights as shareholders in a company, including the right to vote at shareholder meetings and the power to negotiate management changes in the event of mismanagement. The company will also issue annual reports describing overall operations and plans for the future period. This information is a valuable resource for investors to compare with similar companies in their industry or sector, helping them make informed investment decisions.

As an alternative to individual stocks, some investors opt for index funds and ETFs, which bundle several stocks together in one portfolio. The cost to manage these types of funds can be a bit higher than for individual stocks, but they provide more diversity and can reduce the overall costs of an investment portfolio.

Investing in stocks is a great way for ordinary people to grow their wealth by building stakes in the world’s most successful corporations. With a little research and some guidance from experienced professionals, it’s possible for anyone to start building their investment portfolio.

If you’re ready to take the plunge, Kiplinger has all of the basics you need for beginning your investment journey. Learn how to buy stocks, how to determine your investing goals and how much of your money you should allocate to stocks.

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