How Do Stocks Work?

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In its simplest terms, a stock is a piece of a company that can be borrowed in a couple of ways, and when the value of the company increases, the value of the stock increases. Find out how a person can lose all of their money when a company ceases to exist with help from a licensed financial planner in this free video on the stock market and investing.

Part of the Video Series: Stock Market
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Video Transcript

My name is Bill Rae. I'm with Alumni Financial Services. I've been in the business in the finance world for well over 20 years and today's question is how do stocks work? Great question. First of all, what is a stock? We hear that word all the time, the stock market's up, the stock market's down, people are buying and sharing stocks, but what is a stock? In a very basic, by the way we're not going to give you investing advice here, we're simply going to explain that a stock if you will is a piece of a company in it's simplest terms. In other words if I had a company and I need to raise a half a million dollars to buy equipment, to hire employees, to run my business, there's two ways I can do it, well actually there's many, but two common ways. One would be to borrow it through a bank or an investment vehicle like a bond and the other is to convince you to give me a little bit of money and I'll give you a little bit of my company. Now once you do that, there's many ways that we can do it, do you have a voice in my company, don't you have a voice in my company. That's a topic for another time. But just suffice to say that a stock is a little piece of my company. So how do they work? If I do well and I increase the value of my company, then you can expect to get a good return on your money. If I do poorly and my company ceases to exist, you could potentially lose all your money. So as in any type of investment, any type of financial contract or agreement, we urge you to understand what it is you're signing, what it is that you're buying into. What do they want from you? When and how can you get it back? And what kind of return should you reasonably expect? Our advice always is to seek outside counsel and when necessary or needed, make sure you're dealing with a licensed investment person. My name is Bill Rae, I'm with Alumni Financial Services and as always, we're here to help you build wealth.

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