Investing in Stocks
Investing in stocks can cause you to make or lose money. By purchasing stock, you are buying part of the ownership of the company. These ownership pieces are called shares.Will You Make Money?
Several factors will determine whether you make money or los money. Here are the main factors that apply:
- The success or failure of the company
- What type of stock you purchases
- Overall conditions in the stock market
You will make money either through dividends paid or capital gains. A dividend pays out when a company does well and wants to share its earnings with their stockholders. Capital gains are made when you sell a stock for more money than you paid for it.What are the Different Types of Stock?
Common stock is usually easier to earn capital gains on. Most common stock doesn’t earn dividends. There is no limit on what you can sell your stock for.
Preferred stock is usually safer and more predictable. It most likely will pay dividends. You probably won’t see the same opportunity for huge capital gains.
If a company fails, “Preferred” stockholders get paid as a priority before common stock holders.What Should I Know?
Before you invest in stocks, you should understand the costs involved. When you buy or sell stocks, you will pay trading fees and commissions.
Usually, diversification, that is spreading your investment over a range of stocks is a good strategy. That way, you’re not putting all of your eggs in one basket, and the overall risk decreases.