What are Stocks?
Stocks, or
equities, are issued by companies and represent
proportionate ownership interest in those companies.
Owning a share of stock represents a small piece of
ownership in that company. When you own stock in a
company, you can potentially benefit from the
dividends that are issued by the company, and/or the
stock price of the company if it goes higher.
Conversely, when the performance of the company goes
down, you may receive lower dividends or the price
of the stock may decrease.
Why Invest in Stocks?
Stocks usually have higher short-term risk than
bonds. Historically, equity markets have tended to
move both up and down in a more dramatic manner on a
day-to-day basis than traditional fixed income
instruments. However, equities have historically
produced the highest returns relative to other
investment classes.* An investment portfolio
containing a mix of stocks, bonds and cash is one
way to diversify your investments and plan for your
future goals.
Long-Term Investing Versus Market
Timing
Many individuals try to time market highs and lows,
while others stay invested for the long-term.
History has shown that staying invested in the
market over a period of years provides investors
with greater benefits than buying and selling on a
frequent basis. Even though the U.S. stock market
has had such well-known crashes as those witnessed
in 1929, 1987 and 2000, the long-term trend of the
market has remained upward despite these, and other,
setbacks and corrections.* A long-term, diversified
investment plan can help to minimize short-term
diversified market fluctuations.
Types of Stocks:
Blue Chip
Stocks are stocks that are
issued by large, well-established companies such as
General Electric, IBM and Coca Cola. These stocks
have long histories of financial growth, earnings
and of paying consistent dividends.
Value Stocks
are generally regarded to be under priced compared
to the relative financial strength of the company
which they are issued by. Often the company has
fallen out of favor for one reason or another, but
continues to have solid financial earnings.
Growth
Stocks are generally
issued by companies with solid growth potential but
have less of a track record of earnings success.
Growth stock companies tend to have sales and
earnings that are increasing faster than the average
company, although they usually pay small or no
dividends. Although these companies do not typically
pay dividends, they do retain earnings and reinvest
them in order to fund company expansion.
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