What Is A Stock?
Stocks represent part ownership in a public corporation. It’s as if you buy a piece of the company–if it makes money, so do you. By the same token, if the company you invest in falters or fails altogether, you could lose some or all of your investment.
That’s why it’s so important to know something about the companies in which you buy stock. You should know its products or services, its market, and whether or not it has a sound balance sheet, positive cash flow, and competent management. You should also consider what analysts predict in earnings for the company’s future.
Because stock prices tend to fluctuate more sharply–both up and down–than other types of asset classes, stocks are considered more risky than cash or bonds. However, history has proven over and over again that stocks outperform every other type of investment, as well as inflation.
If you do your homework, choose well, and patiently ride out market volatility for 5-10 years or more, chances are very good that your stock portfolio choices will reward you with higher returns than anything else in which you might have invested.