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!