General Finance

Is Investing in Stocks a Good Idea?

When making any financial decision, you should always do your homework and research what it is that you’re putting your money into. This is especially true if you’re investing in stocks. You should do some research about the company you’re looking to purchase a stock in. If you don’t already know, a stock is a type of security that signifies ownership in a corporation and represents a claim on a part of a corporation’s assets and earnings. Imagine owning a piece of some of your favorite companies and being able to grow with them.

Types of Stocks

Common Stocks: Entitles the owner to vote when it comes to the shareholder meetings. You are also entitled to dividends in the event of a liquidation. They are last on the priority list, though, behind debt obligations and preferred stock.

Preferred Stock: Entitles the owners to fixed dividends but does not include voter’s rights, unlike the common stock. It is higher in the claim of assets and earnings and is like a combination between debt and equity. The details of each preferred stock are different from each issuer.

When you hear about people purchasing stocks, they are most likely talking about purchasing common stock. Generally, there are two main types of these. There are growth stocks, where you expect the value of the stock price to grow over time to increase the value of the stock you own. There are also value stocks, which generally don’t rise in value as quickly as growth stocks, but often provide dividends and do so consistently.

Why Should You Invest in Stocks?

Common stocks are risky, but usually outperform debt and preferred stocks. Since 2009, the stock market has grown by 180%. They are great in the long-term, outpacing many of their investment counterparts, but they can be volatile in the short-term.

Stocks come in three cap sizes:

  1. Small cap stocks are usually stocks for smaller companies looking to grow. They are usually very volatile.
  2. Medium cap stocks are usually a mix of growth and value stocks, depending on their situation. They can be relatively volatile.
  3. Large cap stocks are usually traded more often, which makes them stable. Their stability also keeps them at a fair market price.

Small cap stocks are generally the riskiest but have the most room for growth. Large cap stocks have less room to grow because they are already at the top of their respective markets. The biggest thing is making the right decision for your stock purchase based on DOING YOUR RESEARCH.

Bottom Line

Stocks are good investments as long as you are doing your research and picking the stocks that are best for you. For example, some people only buy stocks from companies that they use daily, such as Amazon. Finding a strategy and sticking to it is usually the best way to invest. The problem is that many people get “big tips” from a friend or coworker and take it as a message from an all-knowing being. Try taking a course Surefire Trading or reading a book like “The Intelligent Investor” to learn the best way to invest your money in stocks. There are many resources online, such as Investopedia.com. Never stop learning and you will become a successful investor.

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2 thoughts on “Is Investing in Stocks a Good Idea?”

  1. Nice informative blog post! I’d like to stress more on the risk and return relationship of individual small-cap stocks because you are taking on a lot more volatility for just a few percent more return.

    Liked by 1 person

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