Stock Market
Let’s talk about corporations. A corporation is a business. Like any business, it has employees – some of them managers, some of them not. What makes a corporation a corporation is largely the issue of ownership. Who owns the business? In the case of a public corporation – the shareholders do. Who hires the employees? The top managers are hired by a board of directors – a group of individuals (usually shareholders, sometimes also employees but sometimes not) who decides on the management.
The relationship between owners (shareholders) and management can be a complicated one. But in general, if the business grows and succeeds, the shareholders make money.
There are two ways a shareholder can make money when a company succeeds. First, as the company grows, more people want to own it, so the stock price goes up. You can then sell your shares at a profit. Some companies pay a portion of their profits back to the shareholders. These distributions are called dividends.
There are lots of factors that impact the price of stocks, so this is somewhat of a simplification. But it’s safe to say that if you buy shares of stock in a company that is growing and succeeding, you’ll end up doing well in the long run. If you buy shares of stock in a company that is failing or goes into bankruptcy, you can end up losing your entire investment.
To minimize the risk of losing your entire investment, there are two common approaches. One is to buy a mutual fund – that’s a fund that owns shares in many different companies. The other is to spread your investment among a number of companies.
Investing in stocks is considered riskier than putting your money in a bank savings account or CDs – that’s because you can definitely lose money. However, for long term investments stocks are very popular because historically they have paid much better returns than that of savings accounts or CDs.
Stock Market Topics
Investing Topics
See Category: Investing
