Learning to Manage Money

What is a Stock?

What is a stock?

A stock is a share of ownership in a company!

Normally, when people say that they own stocks, what they are really referring to is “common stocks“. 

Why would I want to own shares of common stock? 

There are two primary advantages of owning common stock:

  • Capital Appreciation – This means how much more the price of the shares of stocks that you bought went up! So if you bought $50 worth of stocks, and now 3 years later, they are work $90…  That means that your stocks appreciated $40!
  • Dividends – Some stock pay you a dividend for owning the stock.  Typically they are paid out ever 3 months!  That said, I personally own 1 stock that pays out its dividend every 1 month!

The disadvantages of owning stocks is that they are risky!  This is a slim chance that the stock that you own may go down in value or even go out of business.  I invested in 1 (and almost 2) stocks that did go out of business!  This is a huge ego buster!  Luckily, the stock that I had that went belly up were also stocks that I didn’t have much money invested in!  Now I know that it’s best to buy more established safe stocks or better yet invest in mutual funds!  Stocks are a wonderful investment vehicle, but it’s hard not to gamble by going into more risky but higher return stocks!

Contrary to popular opinion, I’m teaching my kids to just manage a few stocks instead of a mini-mutual fund amount.  It’s easier to track a few stocks where you know a decent amount about the company.

And the above is what I taught my kids what a stock is!

Rich

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