A stock market broadly refers to a type of investment representing an ownership share in a company. Stocks are also known as equities that investors buy to multiply their assets. In simple words, stocks are a way to build wealth through the collection of exchanges and other venues where companies buy, sell, and insurance shares.
Public companies sell their stock through the stock market, such as the New York Stock Exchange, Shanghai Stock Exchange, Nasdaq, and Euronext. These stocks also help companies to grow in the business market.
Why should you own stocks?
The primary reason investors own stocks is that it helps them earn a return on their investment. When the stock prices rise, it helps them achieve capital appreciation and dividend payments; this is because the stock market’s returns often outpace the inflation rate, which can help slow down or prevent the adverse effects on taxes. Owning stocks in different companies allows you to build your savings and protect your money from inflation and taxes.
Many companies pay dividends, which are regular payments to shareholders. Not all stocks pay dividends, but those who do typically do so every quarter. These dividend incomes can help you supplement an investor’s paycheck or retirement income. Investing in stocks can also help you earn passive income after retirement or losing your job.
Types of stocks
There are two main types of equity investments:
Most investors own common stocks in public companies because holders of common stock elect the board of directors and vote on corporate policies. When the stock price goes up or down, these shareholders can choose to either sell their shares at a profit or hold onto them. Ordinary shares are sold and bought more quickly than any other investment, allowing investors to buy or sell their investments for cash with much relative ease.
Preferred stocks offer many different rights to shareholders than common stockholders. This holder receives regular and a fixed dividends, allowing owners to set their income from the reserve each year.
These owners are also the first to receive the company’s commission and earnings along with any excess cash from the dividends. However, if the company goes bankrupt, then the preferred stock owners receive a liquation of assets, the company assets are sold to repay the creditors, and the business itself closes down.
Risks of investing in stocks
The most significant risk of engaging and investing in stocks is stock market volatility. Statistics prove that the market declines about 10% every 11 months; hence there is a chance that you could also lose the sum you invested. A stock price can be affected by many factors such as faulty products, poor political and market engagement, poor customer service, or poor management.
If a stock has performed well over the past few years, there is still no guarantee that you could receive a return. No one can predict how a stock will perform in the future; hence there is no guarantee that the prices would go up and the company would pay dividends, or even if the company will stay in business.