Simply put, stocks are an investment vehicle that allows you to accumulate wealth over time. They’re an investment that rewards you with a tiny share in a company that makes the stock market function. The concept of stocks is very simple – buy a stock and then wait for it to increase in price. It’s a great way for ordinary folks to make money from home, but what kinds of stocks are available? In this article, we’ll answer that question and more!
There are two main types of stocks: long-term and short-term. Long-term investing is the tried-and-true method of investing, where you hold onto your shares and wait for the profits to build up. This is the smartest way to invest because no matter what happens, your money will be safe. However, it also has the lowest potential for profit. Because stocks have no guarantee of dividends, they’re a risky investment, but there is one major advantage to investing in stocks: They work like bonds.
As opposed to traditional bonds, stocks have the potential to move significantly in either direction. If you buy a stock that goes up, your profits are limited only by the volatility of the stock – and that’s determined by your brokerage firm. Most brokerages offer stock investments that are tied to a portfolio of fixed returns, meaning that as the stock goes up, so does your share in that portfolio. When you purchase shares from your broker, your brokerage account maintains ownership of the stocks that have gone up in value.
Another advantage to buying stocks through a brokerage firm is that you only pay maintenance fees on ownership shares that stay in your account. With all the technical mumbo jumbo that goes along with the buying and selling of stocks, it can get confusing. Some investors prefer to use an online broker so that they don’t have to deal with the hassle of choosing, buying and managing individual stocks. Online stock brokers charge a commission on sales of stocks, which means that they are able to earn a percentage of each sale.
A commission based stock broker will likely sell many stocks throughout the day. Because of this, you’ll pay the full value of the stocks per trade, not just your account minimum. This commission structure can be highly attractive to small-dollar investors who don’t have the financial means to buy many stocks on a regular basis. Since the cost of these trades is less than the cost of a commission per stock, it makes it more affordable to buy a large number of shares without having to worry about paying too much for each one.
Stocks aren’t the only type of investment you can consider when planning for your retirement. It’s important to remember that, just like bonds, many companies will engage in derivatives. Derivatives are financial products that allow companies to become completely dependent on another for their success. These securities offer major advantages to long-term investors over those who prefer to hold on to stocks or mutual funds for the long term.