Investing in Stocks

Stocks are one of the most common ways for individuals to invest money. They provide a great potential for growth over the long term. Investors may also profit from shorter-term stock price movements or earn a return through dividend payments. But there are risks to consider.

A stock is a share of ownership in a publicly traded company. Companies issue stocks to raise money often called capital which they use for a variety of purposes including reducing debt, investing in new products, and expanding into other markets and sectors. Shares are traded on a stock exchange where the supply and demand for them dictates their prices. Stocks are an excellent way for investors to diversify their investments by owning a piece of various companies.

The primary reason people buy stocks is to make a return on their investment. They are a more volatile asset class than fixed income investments like bonds or real estate and as a result they can fall in value quickly. But over time, if you stick with them and don’t sell when the market is down, historically stocks have provided the greatest opportunity for growth or “capital appreciation.”

Stocks can be divided into categories by their size which is referred to as their market capitalization. There are large-cap, mid-cap, and small-cap stocks. The lowest priced shares are sometimes called penny stocks and typically have little or no earnings. Many stocks are dividend paying which is a form of regular income and can be very beneficial for those who need to supplement their cash flow. There are also many different types of stocks, ranging from those that pay a regular quarterly dividend to those that don’t. Companies that are growing very rapidly, for example, usually don’t pay regular dividends and instead choose to reinvest their profits back into the business.

Generally speaking, most stocks tend to rise over the long term, though there are always exceptions. Typically, those who own stocks and hold them for longer periods of time, say 15 years or more, will be rewarded with substantial profits, although they should keep in mind that this doesn’t necessarily mean they will profit every year.

Another potential benefit of individual stocks is their tax control in a nonqualified retirement account. This is because dividends paid to shareholders are generally taxed at a lower rate than ordinary income.

Regardless of the reasons you choose to invest in stocks, we can help you find the right mix for your personal situation and goals. If you’re ready to discuss how stocks might fit into your overall portfolio, we invite you to schedule a complimentary consultation with Edward Jones today. We can explain the benefits of owning stocks and help you reach your financial goals.

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