Man reading Business Newspaper
Stocks
Could you believe just ten years ago that a small mail-order movie business would overtake Blockbuster? Or that the personal computer would lead to the end of department stores? Could you also imagine that a website with no ads on its homepage would become one of the largest public companies in the world? If you could, then you could have made lots of money. One of the ways you could’ve made it is by believing in the companies. What I’m talking about is buying their stock. Especially today, it’s as simple as creating an account and transferring funds online. It takes less than ten minutes. As an alternative to banking instruments and bonds, stocks have historically high earning potential. But, stocks require careful research and planning before you decide to go ‘all-in.’ Here I’ll give a broad overview of what stocks are, how they work and how to learn more right from the library.
The right stock for her may not be the right stock for you.
What are stocks?
Stocks are ownership shares of a company. By buying shares in a business, you take a financial interest. In short, you now own part of that company. Stocks are known as equities, too.
Why buy stocks?
Why not decide to buy gold or a classic car instead? There could be a few reasons. You believe the stock’s price will rise, are interested in its dividend, or want to influence the company. Over time, equity values can increase your wealth substantially. Stocks have outperformed bonds 2-to-1 since 1926.
Although prices of stock might have a higher potential value, they carry risks.
What are the risks?
Stocks are the most volatile investments. A year over year price swing is normal. Unlike bank savings accounts, stocks are not FDIC-insured. You may lose all of your money. Also, unlike bonds, stocks put you last in line to recoup your money if the company goes bankrupt. Stocks can also lose value due to the broader market, political uncertainty or natural disasters. For this reason, it’s important to do your research on a company before you make any financial decisions.
Investment Strategies
Consider the following:
- How old am I?
- What other investments do I have?
- What’s my financial situation? Do I have anything coming up where I may need a significant amount of money?
- How much do I pay in taxes?
- Why am I investing? To buy a home, start a business, become affluent, or preserve my wealth?
- How much experience do I have investing?
- When will I reach my financial goal?
- How much stock can I convert to cash in an emergency without taking significant losses?
- If I lose money, how much am I willing to risk?
If you have a financial advisor, these questions may sound familiar. That’s because they are characteristics of FINRA’s suitability rule. Make sure your financial advisor is operating in your best interest. Learn from the FINRA Foundation what a Financial Advisor is and does. The FINRA Foundation also includes 5 Steps for Selecting an investment Pro.
For the amateur investor, there are many free resources available. First, check your risk tolerance. The Rutgers University Investment Risk page uses a quiz to get an idea of your risk tolerance.
Fighting Fraud
With stocks, there are no guarantees. You could lose money. The SEC ensures that all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment. The SEC maintains a page to receive tips of securities fraud. Finra has many tools to help protect you.
In spite of how hard it can be, investing can help you reach your goals. With the resources the library gives you for free, you can make smart financial moves.
Books on Investing in Stocks: