Investments: Common Stock



Sometimes the stock is referred to as shares, securities or equity. Common stock is ownership of a part of a company.

For every share you own in a company, you also partly own a small piece of the office furniture, company cars, and even that snack that the boss paid for using the company credit card.

You are also entitled to a share of the company’s income and any voting rights that come with the share. With other companies, the profits are usually paid out in dividends.

The more stocks you possess, the bigger the portion of the company and profits you will own. 

The majority of stocks traded nowadays is in the form of “Common.” Common shares signify rights in a company and a portion of profits (Dividends).

The investors also have the privileges to vote (one vote per stock share) to choose the board members who manage the major decisions made by management.

In the long run, by way of capital development, common stock income increases rewards than other forms of investment securities. This higher yield comes at a price, as common stock involves the most risk. If a company goes bankrupt and liquidate, the common stockholders will not get the money until the creditors, bondholders and preferred shareholders are paid.

Objectives and Risks 

For a long period of time, no investment offers better returns at a practical risk than common stock. History dictates that common stocks average 11-12% per year and outperform just about every other type of security including bonds and preferred shares. Stocks offers potential for capital increase and income and provide protection against moderate inflation. 

The risks associated with stocks can differ widely, and they typically depend on the company. Buying stock in a well-established and profitable company means there is minimal risk youll lose your investment, while buying a penny stock  up turns your risks considerably. If you use margin, you can also extremely increase your leverage in a stock, but this is only suggested for knowledgeable and experienced investors. 

How to Buy or Sell It 


The most common technique for purchasing stocks is to use a brokerage firm, full service or discount. There is no minimum investment for majority of stocks (except for the price per share), however, many brokerages demand clients to have at least $500 to open an account. Dividend reinvestment plans (Drips) and direct investment plans (DIPs) are two ways individual companies permit stockholders to buy a stock straight from them for a minimum price. DRIPs are also a good way to invest money at regular intervals. 

Strengths 

It is very easy to buy and sell Common stock.

It is very simple to find reliable info on public companies, making  the study   possible.

Over 11,000 public companies in North America to select from.

Weaknesses 
Your original investment is not certain. There is always the danger that the stock you invest in will decrease in price, and you may lose your complete principal.

Your share is only as good as the company in which you invest.  Poor company means poor share performance.

Three Main Uses 

Capital Appreciation

Income

Liquidity


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