A stock is an investment (also capital stock) which involves purchasing a company’s stock called shares, into which the ownership of the corporation is divided.
It should be noted that shares are collectively known as “stock“. A lone share of the stock indicates fractional ownership of the corporation in proportion to the total number of shares.
Stocks are purchased and sold usually on stock exchanges, however there can be secluded sales as well, which is the groundwork of many individual investors portfolios.
Overall Investors purchases stocks in companies they consider will go up in valence. If this happens, the company’s stock grows in value too. The stock can then be sold for a profit.
These transactions have to submit to government regulations which are meant secure investors from been victims of fraudulent practices.
Historically, they have performed more than other investments over the long run. These investments can be purchased from most online stock brokers. Stock investment differs greatly from real estate investment.
Types of Stocks
There are two [2] main types of stocks, namely: common stock and preferred stock.
Common Stock
A common stock is a representation of part ownership in a company, Common stock comes with voting rights, as well as the contingency of dividends and capital valuation.
common stock is quite common than any other. When people discuss about stocks in general, they are most likely referring to this type. In fact, majority of stock that are mostly issued is in this form. It is the type of stock most people invest in.
Common shares portrays ownership in a company and a demand (dividends) on a piece of profits. Investors usually gets one vote per share to elect the board members, who reviews the major decisions made by management.
consequently, common stock, by virtue of capital growth, yield in higher returns practically than every other investment.
Undoubtedly, this higher return comes at a cost since common stocks requires the most risk. However if a company goes bankrupt and liquidates, the common shareholders will not be able receive money until the creditors, bondholders, and most preferred shareholders are paid.
Preferred Stock
Preferred stock is a class of corporate shares that represents some degree of ownership in a company which usually come with unequal voting rights (This may vary depending on the company’s policy).
This is quite different from common stock, besides with preferred shares investors are usually assures a fixed dividend forever. These shares come with special rights that give these senior investors preferred status over the common shareholders
Alternatively you can think of a preferred share as a premium or priority share that the company issues to senior investors. Some people consider preferred stock to be such as debt than equity.
Another benefit of preferred is that during the event of liquidation preferred shareholders are paid off before the common shareholder (but still after debt holders).
Conclusively preferred stock may also be callable to its holder, which means that the company has the possibility to purchase the shares from shareholders at anytime for any reason (usually for a premium).
Steps to Purchase Stocks
Step 1: Open an online brokerage account
Are you wondering where you can purchase stocks? Opening an online brokerage account is so relaxing as setting up a bank account. All you need is to do is to complete an account application, then provide proof of identification and select how you want to fund the account.
You may fund your account by mailing a check or transferring funds via electronic means.
How do you know if broker is worthy of your money? There are two crucial things to consider when opening an account to buy stocks;
1. The cost of commissions: The commission is the payment fee a broker charges, each time you purchase or sell a stock.
Searching for a broker that charges so low or without commissions will be basically significant to active traders, those who place 10 or more trades per month.
On this contrary it is important that all investors considers costs, as they might eat into your investment profits. Here are two brokers that comes top for commission free trades;
- TD Ameritrade: These is recommended for beginner investors, it also offers commission-free trading of stocks, ETFs and options.
- E-Trade: Offers commission-free trading of stocks, exchange-traded funds and options.
2. How much support you need: Critically consider the broker’s offerings of educational tools, stock-trading research, investment guidance and access to live discussion via phone calls, email, online chat, webinars or visit branch offices for consultation.
Evidently Merrill Edge has stood out for investor resources and customer service. The broker offers investors a noteworthy selection of research about stocks as its website is stocked with educational videos, courses and webinars about stocks.
Step 2: Select the stocks you want to buy
After you have set up and funded your brokerage account, it’s time to plunge into the business of selecting stocks.
An advisable place to start is by making researches in companies you already know from your experiences as a consumer.
Never let the overwhelming data and real-time market revolution engulf you as you conduct your research.
Keep your objective simple, remember you are looking for companies of which you want to become a part owner. Then you start with the company’s annual report, most especially the management’s annual letter to shareholders.
The letter will give you a general narrative of what’s happening with the business and provide functions for the numbers in the report.
After that, more than half the information and contingent tools that you need to access the business will be made available on your broker’s website, such as conference call transcripts, SEC filings, quarterly earnings updates and recent facts.
Step 3: Decide how many shares to buy
You have to feel no or less pressure to purchase an unavoidable number of shares or rather fill your entire portfolio with a stock all at once.
Consider starting small by purchasing just a single share in other to feel what it is like to like to own individual stocks.
These will allow you to know if you have the inner strength to ride through the difficult patches with minimal restlessness.
Step 4: Choose your stock order type
Don’t be daunted by all those numbers and meaningless word merger on your broker’s online order page. Make reference to this cheat sheet.
Step 5: Optimize your stock portfolio
We hope your first stock purchase starts the beginning of a longtime journey of successful investment.
However remember if things turn difficult, that key to coming out ahead in the long term is to keep your outlook and concentrate on the things that you have maximum control over.
Learning how to purchase stock is indeed a huge step, you really need to consider.