7 Steps of Investing Basics – Step 3 Stock Investments
Step 3 – Types of Investments: Stocks
Presented by William Edward Blanken Jr
How do stocks work?
When you buy a company’s stock, you’re purchasing a share of ownership in that business. You become one of the company’s stockholders or shareholders. Your percentage of ownership in a company also represents your share of the risks taken and profits generated by the company. If the company does well, your share of its earnings will be proportionate to how much of the company’s stock you own. The flip side, of course, is that your share of any loss will be similarly proportionate to your percentage of ownership.
Stocks by Size
Note: The values used to define companies by size are highly variable. Different organizations define these ranges in different ways, and the ranges can vary over time with general stock market values.
If you purchase stock, you can make money in one of two ways. The company’s board of directors can decide to distribute a portion of the company’s profits to its shareholders as dividends, which can provide you with income. Also, if the value of the stock rises, you may be able to sell your stock for more than you paid for it. Of course, if the value of the stock has declined, you’ll lose money.
The role of stocks in your portfolio
Though past performance is no guarantee of future results, stocks historically have had greater potential for higher long-term total returns than cash alternatives or bonds. However, that potential for greater returns comes with greater risk of volatility and potential for loss. You can lose part or all of the money you invest in a stock. Because of that volatility, stock investments may not be appropriate for money you count on to be available in the short term. You’ll need to think about whether you have the financial and emotional ability to ride out those ups and downs as you try for greater returns.
The universe of stocks offers enormous flexibility to construct a stock portfolio that is tailored to your needs. There are many different types of stock, and many different ways to diversify your stock holdings. For example, you can sort through stocks by industry, by company size, by location, and by growth prospects or income.
Growth stocks are usually characterized by corporate earnings that are increasing at a faster rate than their industry average or the overall market. Income stocks (for example, utilities or financial companies) generally offer higher dividend yields than market averages. Value stocks are typically characterized by selling at a low price relative to a company’s sales, earnings, or book value.
These are only some of the many ways in which stocks can be identified, and your financial professional can help you decide which might be more appropriate for you than others. With stocks, it’s especially important to diversify your holdings. That way, if one company is in trouble, it won’t have as much impact on your overall return as it would if it represented your entire portfolio.
- Historically, have had greater potential for higher long-term total return than cash or bonds
- Easy to buy and sell
- Can provide capital appreciation as well as income from dividends
- Ownership rights
- Poor company performance can affect dividends and share value
- Greater risk to principal
- May not be appropriate for short-term investment
- Subject to market volatility
The amount of a company’s dividend can fluctuate with earnings, which are influenced by economic, market, and political events. Dividends are typically not guaranteed and could be changed or eliminated.
BLANKEN MANAGEMENT INC DISCLOSURES
The investment advice provided along with the strategies suggested by Blanken Management will vary depending on each client’s specific financial situation and goals. There are risks involved while investing in securities. Considering the risks, you should fully understand the nature of the contractual relationship into which you are entering and the extent of your exposure to risk. Certain investing strategies may not be suitable for many members of the public. You should carefully consider whether the strategies employed will be appropriate for you considering your experience, objectives, financial resources, and other relevant circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
This communication is strictly intended for individuals residing in the state(s) of FL. No offers may be made or accepted from any resident outside the specific states referenced.
Prepared by Broadridge Advisor Solutions Copyright 2020.
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