What Exactly are Stocks?

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If you have never invested, or are unfamiliar with stocks and bonds, now is the time to find out about them! The economy is tough and many of us that thought we would have retirement benefits from our employers are finding out that we may not! We need to take control of your financial future and investing in stocks could be just what we need today! So what are stocks exactly?

It can be confusing if you have never gotten involved in investing. The first thing you need to know is what exactly stocks actually are. A basic explanation is that stocks are actually like owning a piece of a company. Companies sell stocks in order to bring more money in for growth or improvements without having to take out costly loans. In turn the stock holder then has a stake in how well the company does financially. Stock values fluctuate as the value of the company fluctuates.

One common misconception of purchasing stocks in a company is that if the stock price drops, or goes lower, that you lose money. The reality is you do not lose an actual penny unless you decide to sell your stocks when the price is lower than when you purchased them. This is why most people that invest in stocks, do so on a long term basis. Stock prices will drop and then rise again; you have to be willing to wait out the drops in value. Usually stock value will rebound and then your stocks will be worth more than what you originally paid. If you choose to sell your stocks at this point, you will make a profit.

If you are interested in getting involved investing in stocks, make sure you do your research on the company first! You can check out how well or how poorly the stocks have done in the past and you should also look at what major changes have recently taken place or are planned for the future.

Many stocks are traded on stock indexes. The most commonly talked about is the Dow Jones, but did you know that only 30 stocks are actually included on this exchange? There are many publicly traded stock exchanges, don’t think that the current state of the Dow Jones is a reflection of your particular stocks, as it may not be.

Sometimes stock value is based more upon perception than the actual value of the company. Take for example the dot com phenomena. Initially everyone was investing in companies that were online and stock prices soared. Just as quickly the realization that these companies weren’t making the kind of money anticipated, the stock prices plummeted. This is the reason that thorough research should be completed prior to buying any company’s stock!

Make sure to invest only money that you can live without for the time being. Look at investing in the stock market as a long term investment venture. You don’t want to use money that you need to survive. Investing in stock can be quite profitable in the long term, as long as you do your research and exercise patience!