What Are Stocks?

Stocks are a share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders. After the initial sale, the shares can be sold and resold on the stock market.

• If the company does well, or even if everyone thinks the company is going to do well, the price of the stock goes up. This is how stockholders make a return on their investment.
• Conversely, if the company does poorly, then the shares decrease in value, and the stockholders lose their investment.
• In addition, many companies give a little dividend payment each year to the stockholders, providing extra income.

What Are the Benefits of Stock Investing for the Individual Investor?

Stock investing is a very good way to take advantage of a growing economy and protect your investments from a declining economy.

• By following economic indicators, you will know when the economy is growing and when it is declining.
• You can gradually adjust your investment portfolio, adding more stocks in growth sectors (for example, housing, consumer products, and small businesses) as the economy starts to improve.
• When the economy starts to decline, that would be a good time to sell some of the growth sector stocks, and possibly purchase bonds or stocks in large corporations.

How Does an Individual Investor Participate in Stock Investing?

There are many ways to participate, each with advantages and disadvantages.

• Online investing. This is the lowest cost in terms of fees. However, it can be the most risky, since you get little advice, and must educate yourself completely on how to invest.
• Perhaps the most risk is from the emotional aspect of investing, which triggers greed when the market is doing well, and causes most people to buy stocks when they are the most expensive.
• Conversely, when the market is not doing well, this triggers fear, causing most investors to sell when the prices are low.
• Investment clubs. This helps give you more information, and helps to protect you from fear and greed.
• Financial professionals. This is more expensive in terms of fees, but you do get more information and recommendations, and are better protected from greed and fear.
• However, you must shop around to select a good financial professional that you can trust.

Selecting which way to invest in the stock market is a personal decision that depends on your comfort with risk, and your ability to spend time learning about the stock market.