Stock Basics for New Investors

As a new investor, it is important that you learn stock basics. By increasing your knowledge about stock, you can more easily become a successful investor. Here are some of the stock basics that you need to know.

What Are Stocks?

Before you get involved in the stock market, it is important that you understand exactly what stock is. When you purchase a share of stock, you are actually purchasing partial ownership of a company. A company will issue stock in order to raise funds for business purposes. Instead of borrowing money from the bank, the company sells part of their equity in the company. 

The most popular type of stock is called common stock. With common stock, you will have voting rights with the company that you own stock in. For each share of stock that you own, you will be able to cast one vote on important business matters. As a stockholder, you will also be able to receive dividends when they are issued by the company. Many times, companies will issue dividends to shareholders as a way to divvy up profits that have been generated.

Common Misconceptions

There are many different misconceptions surrounding stock and how it works. For example, many people think that gambling and investing in the stock market are basically the same thing. This could not be further from the truth. Although there is an element of chance involved with the stock market, you are going to be making educated decisions. Most investors spend a lot of time analyzing stock choices and giving themselves a better chance of success. With gambling, you really are leaving everything up to chance.

Many investors also have generalized ideas about when to purchase stock. While the basic principle of "buy low, sell high" is true, there is a lot more to it than that. For example, just because a stock price is down does not necessarily mean that the price will go up again. On the other hand, many people also believe that if a stock price is up, it is due to go down significantly in the future. If you are dealing with a good, solid company, this may not be the case.

Benefits

There are many benefits that you will potentially be able to receive by investing in the stock market. By investing in stocks, you will be able to receive capital appreciation from your investments. When the value of stock goes up, you can benefit from the difference in the price. If you hold stocks for the long-term, you will also be able to benefit from a lower capital gains tax rate.

You can also create a regular source of income for yourself through receiving dividends. The more stocks that you buy, the bigger your dividend checks can be.

Risks

When you buy stock, there is a chance that you could potentially lose your entire investment. If the company files for bankruptcy, there will often not be anything left for the stockholders when the company dissolves.

blog comments powered by Disqus
Scottrade