It’s common knowledge that investing in the stock market is one of the most effective ways to build wealth. It’s also an overwhelming and complicated process for many newbie investors. Terms like stocks, shares, and market fluctuations can give anyone a headache.
You need to understand the basics of stocks and shares if you want your investments to grow. This post will explain what stocks and shares are and how they work. You’ll also get an overview of why you should invest in stock certificates.
What Are Stocks and Shares?
You would’ve exchanged stocks with shares if you were new to the stock market. It’s a common faux pas since the two appear similar. But they have distinct meanings.
Stock refers to ownership in a company in general. So when your friend says he owns “stock in Apple,” he invested in Apple Inc.
Shares are units of ownership in a particular company. If your friend owns 10 shares of Apple stock, that’s the part of the company they hold.
In essence, buying stocks means buying a piece of a company. The more shares you own, the larger your stake in the company is.
Why Do Companies Issue Stocks?
Every company needs healthy capital to fund its operations or expand its business. Companies also need money to develop new products. Issuing stocks is one of the best ways to raise capital.
Many business owners prefer to sell a part of their company to investors instead of getting a loan. Selling shares gives them access to funding without taking on debt. It also gives investors like you the chance to own part of a business. You’ll also have the opportunity to earn profits if the company does well.
Companies that decide to sell shares to investors will do an Initial Public Offering or IPO. This only happens during the first share selling. After that, they trade shares on stock exchanges like Nasdaq or the New York Stock Exchange (NYSE).
Why You Should Invest in Stocks and Shares
Do you want to build wealth? Then investing in stocks and shares should be one of your strategies. It can be scary to invest hard-earned money when the stock market is often unpredictable. But the gains far outweigh the risks. Here are the top reasons why a shareholder certificate or two should be in your future.
- There’s Potential for High Returns
Many people invest in stocks because of the potential for high returns. The stock market has an average annual return of 7% to 10%. That’s much higher than what you can expect from a savings account interest.
Here’s a sample scenario. An individual’s investment of $1,000 in the S&P 500 index 30 years ago would be worth over $17,000 now. That’s if it has an annual return of 10%. It demonstrated that stocks can do better than traditional savings in the long run.
- You Can Enjoy Passive Income Through Dividends
Stocks known as “dividend stocks” issue regular cash payments to shareholders. The payments come from the company’s profits. Investors can get a steady source of passive income from the cash disbursements.
These dividends are great as they can become a reliable income stream. Especially when you retire. You can also reinvest your dividends to buy more shares and grow your investment.
Companies like Coca-Cola and Procter & Gamble are famous for paying dividends. It’s what makes them attractive to investors.
- They’re Liquid Investments
Stocks and shares are liquid investments. These are investments that are easy to buy and sell via stock exchanges. You don’t have to wait for months to gain access to your money. That’s one of the drawbacks when investing in real estate and other long-term investments.
The flexibility offered by stocks and shares allows you to adjust your portfolio. You can opt to buy or sell shares based on your needs or the market landscape.
- You Can Gain Ownership in Successful Companies
You’re buying a share of a company when you invest in stocks. Having a shareholder certificate makes you a partial owner of a company. This comes with several benefits, like a share in the company’s profits. It also means you can vote on company decisions. You can also get exposed to successful businesses like Apple or Amazon.
Take Control of Your Investments
Managing stocks can be daunting, but Legacy Stock Transfer can help simplify it. Our expert team of stock transfer agents will guide you through every step. It doesn’t matter whether you’re buying, selling, or transferring shares. You have our undivided support and attention. Contact us here or at 972-612-4120 and take control of your investment.