Investing in Stocks

Stocks—also called shares, equity, or equities—are a key part of many investors’ investment portfolio. They can be a powerful way to grow your wealth and outpace inflation over time. They also come with a higher risk than mutual funds and bonds, so you need to consider your own tolerance for risk before investing.

To buy or sell a share of stock, you need to have a brokerage account. You then place an order with your broker to buy or sell a specific stock, telling them what stock you want to buy or sell, how many shares you want to buy or sell, and at what price you would like to do so. Your broker relays this information to the stock exchange, which matches up buyers and sellers. Once you have an agreement on a price, your broker will purchase or sell the shares for you and transfer them into your brokerage account.

Companies often issue stock in order to raise money for their business. They can use this money to pay off debt, launch new products, or expand their operations. In contrast to buying a bond, which functions like a loan that creditors make to a company in exchange for regular payments, buying stocks makes you an owner of the business and gives you the right to vote at shareholder meetings.

A company’s stock can be traded among investors, with the price reflecting the value of the business, its prospects for future growth, and its overall performance. Generally, investors don’t buy just one stock—they usually diversify their portfolios with shares of stocks in various industries and countries. The overall return on a stock portfolio can be higher when it’s well-diversified, but every individual stock has its own ups and downs.

In the short term, stock prices can rise and fall rapidly, driven by a variety of factors, including market volatility and global events. These price fluctuations can be nerve-wracking for some investors, but they’re a normal part of the investment process. Generally, long-term investors can ride out volatile markets and benefit from the fact that stocks have historically offered much more growth than other investments.

Remember, though, that history isn’t a guarantee of the future. Some individual stocks have posted much lower returns than others, and some have failed completely. This is why most investors build well-diversified portfolios that include a wide range of stocks, including some that are less risky than others. A financial advisor can help you create a portfolio that’s in line with your long-term goals.

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