These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Of the many different asset classes one can invest in, stocks receive considerable news and attention. Many confuse the amount of news and information for importance. While important as an investment, they are no more important than other asset classes such as cash, bonds and real estate. Perhaps the amount of news being reported regarding stocks is a better indicator of the complexity and scope of stock markets. This can lead to confusion and misinformation. As with any investment, it is important to understand the nature of the investment and to seek professional advice.
Of the four main asset classes – cash, bonds, stocks and real estate – stocks are perhaps the most complex. There are millions of different types of stocks that trade on many many global stock market indexes. While there are many variables to consider when looking at investing in stocks (either individual stocks or via mutual funds) there are some common traits for most stocks.
Stocks represent ownership in a company by way of shares. The number of shares one holds in a company, will determine percentage of ownership in that company. The vast majority of people do not have sufficient shares to exert control over how a company is run. Stock Holders are entitled to shares in the company profits or losses in accordance to the number of shares they own, the types of shares they own and the terms and conditions of the shares owned.
In most cases there are ‘common stock’ and ‘preferred stock’. Each of these stocks ‘classes’ entitle to the owners to different levels of ownership and how the dividends are paid out. It is best to check with the company stock prospectus to determine the differences.
Earnings of a company are paid out by way of ‘dividends’ to shareholders. The value of shares are not guaranteed (like GIC) but are based on how well the company performs and the underlying value of the assets of the company. Stock values rise and fall (increase and decrease) in accordance to how the company performs.
Stocks for the most part trade, can be bought and sold on public stock exchanges such as the Toronto Stock Exchange (TSX), Dow Jones, Etc. There are many stock exchanges located in major financial centres across the world.
Income from stocks can be earned either through dividends being paid out or the increase/decrease in the value of stocks. Stocks are considered a ‘riskier’ investment class than GIC or Bonds given the volatility of their value. Not all stocks are created equal. Some will have more consistent dividend payouts while others may have longer term capital appreciation opportunities. In either case, there are no guarantees.
It is best to seek professional advice and guidance with an Investment Specialist, Certified Financial Plannner or stock broker to determine which types of stock and what percentage of stock holdings are most appropriate for your investment objectives, timelines and risk tolerances.
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