Stocks are a cornerstone of many investment portfolios. They offer the potential for higher returns compared to other asset classes, including bonds and cash alternatives. However, stocks can also be more volatile and may be subject to losses due to market declines. That’s why it’s important to consider your risk tolerance and investment horizon before investing in stocks.
Stocks (or equities) are shares of publicly-traded companies that represent partial ownership in the business. They’re typically bought and sold through exchanges like the New York Stock Exchange or Nasdaq. Stocks can generate returns through two main mechanisms: capital appreciation and dividends. Capital appreciation occurs when the value of a company’s shares increase over time, as a result of the company becoming more profitable or expanding its operations. This allows investors to sell their shares for more than they paid at the original purchase price.
There are several ways to evaluate a stock’s potential for growth, using techniques such as ratios, to determine whether its current price appears cheap or expensive based on historical data. Other factors can impact the price of a stock, including potential good news or bad news about the company that could affect investor confidence. However, in the long run, the underlying business’ success is the biggest driver of its share price.
A common stock investment strategy is to use a practice known as dollar cost averaging, which involves investing a fixed amount of money over a period of time, so you are regularly buying shares when prices are low and selling them when they’re high. This can help decrease volatility and reduce the need to try to “time” the market.
In addition to generating returns, stocks can provide a sense of ownership in a company you believe in or enjoy, and may allow you to contribute to corporate social responsibility efforts. This is a great way to have your financial goals reflect your values.
Stocks have a history of providing higher returns than other assets, including bonds and cash alternatives. They’re also often seen as more exciting than other types of investments, with the potential to offer higher growth over time. However, they’re also a riskier investment than bonds or cash and can be subject to higher losses if the markets decline.
Investing in stocks can be a great way to help achieve your financial goals, but it’s important to develop a comprehensive investment plan that takes into account your risk tolerance and investment horizon before diving into the stock market. Edward Jones can provide guidance and insight to help you make a sound plan and establish an investment strategy.