Stocks or shares are a type of security investment that allows individuals to own a share in a company. While the company hopefully grows in wealth so does the stock dividend. Firms that are listed on the public stock exchange require additional funds for growth. The Initial Public Offering (IPO) is a chance for investors to get on board from ground level. After the initial IPO has taken place then the shareholders can resell their stock on the stock market.
Stock prices will rise or fall according to market conditions and expectations of the firm’s future earnings, or profits. Internal management also plays a large part in the performance of a company and their subsequent stock value.
If you are looking to buy Australian shares it is possible to, as an individual, use a trading platform to access information across all the business sectors. While some investors like to focus on certain business sectors or industries, others prefer to spread the risk among a number of different business sectors.
Types Of Stocks
There are two main kinds of stocks, common stock and preferred stock. Common Stocks usually have a right to vote at shareholder meetings and receive dividends on their investment. Preferred Stocks usually don’t have voting rights but they do receive dividend payments before common stockholders and should the company go into administration Preferred Stockholders have priority over liquidated assets. Growth Stocks have earnings that grow at a faster rate but don’t pay dividends and investors buy them in hope of resale following capital appreciation. Income Stocks pay dividends on a regular basis and are bought generally for the generation of income. Value Stocks are cheaper to buy but have a low price-to-earnings ratio. Investors buy value stocks in the hope that the market has undervalued or the market has overreacted and the value will bounce back. Blue-Chip Stocks are stocks in well-known companies with a solid history of growth that generally pay out solid dividends.
The potential benefits of investing in stocks are the capital gains from owning a stock that grows in value over time and the potential income from dividends paid by the market. Another additional benefit is the management of tax exposure and the spreading of investments.
The potential risks of investing are the volatility of the market. Share prices can fall to zero, firms can go into administration or liquidation. If the business goes broke the shareholders are often the ones who are the last to be paid, if they are paid.
Some companies allow you to buy or sell their stock directly through them. Some companies limit direct stock plans to employees of the company or existing shareholders. Some require minimum amounts for purchases or account levels. Electronic platforms can be used to buy and sell stocks and this is the main approach used by individual investors.
