Stock Facts

Before investing, it is important to understand the basic concepts of stocks.

Definition

Corporations sell stocks to raise funds. Common and preferred are the two types of stocks.

Shares

Each unit is called a share and entitles the shareholder to rights of ownership, including voting rights.

Risks

Investments in stocks have varying degrees of risks and benefits. Generally, the higher the risk, the greater the benefits (or losses).

Common Stocks

.A majority of stocks issued are common stocks and are generally longer term investments, entitling the owner to voting rights and other benefits of ownership.

Preferred Stocks

A short-term investment is preferred stocks, which are limited in rights of ownership but promise fast payout of dividends

Dividends

Dividends are payouts on stocks. With preferred stocks, these are immediate cash payouts while common stocks often roll over into longer term investments.

Benefits

For common stocks, shareholders count on the company growing in profitability so the value of the stock increases. The profit for the shareholder is in the difference in the cost of the stock and its current value. The are other financial rewards as the value grows.