Stocks, often referred to as equities, represent a partial ownership interest in a given company. Public companies sell or “issue” shares in order to fund operations and expansion plans. These shares can then be traded among other investors in the stock market.
The holder of a stock actually owns a portion of the company and thereby has claim to a percentage of the company’s assets and earnings. Ownership in the company entitles one to vote at shareholder meetings and, in some cases, to personally receive a part of the company’s profits.
Dividend Stocks and Growth Stocks
Some companies issue a portion of earnings to shareholders, usually on a quarterly or bi-annual basis. These are called dividends. Dividends are generally only offered by larger, more stable companies. The share prices of these companies do not typically fluctuate greatly, but this is made up for by the issuance of regular dividend payments. As a partial owner of the company, you can think of dividends as a cut of the company’s profits. The amount you receive depends upon what percentage of the company you own.
High-growth companies typically do not offer dividends, opting to reinvest all profits back into the company to fund further expansion. As the company expands, it seeks to increase its earnings and overall asset value. When the company becomes more valuable, so too does each individual share of the company.
Choosing Stocks That Are Right for You
Historically, stocks have outperformed all other types of investment vehicles. They are a very important part of any investment portfolio and a crucial aspect of any retirement plan. With over 9,500 stocks traded in the United States and over 63,000 traded worldwide, choosing the right ones to invest in can be a difficult task.
Our top Financial Counselors can assist you in creating a portfolio made up of stocks in high-quality, stable companies that offer real potential for you as an investor.