Question: What is a Stock?
Answer: A stock represents a unit of ownership in a company. Most of the stock bought on the open market is “common” stock and carries the right to vote on important matters of the corporation including who serves on the board of directors.
If the company distributes profits, stockholders normally receive them in the form of dividends.
Question: What is Investing?
Answer: Investing is the proactive use of your money to make more money or, to say it another way, it is your money working for you.
Investing is different from saving. Saving is a passive activity, even though it uses the same principle of compounding. Saving is more focused on safety of principal (the amount you start out with) and less concerned with return.
Your focus in investing is on return and can run the spectrum from conservative to very aggressive in terms of risk. One way you measure results is by the expected return weighed against the anticipated risks.
Question: What are the Two Types of Stock?
Answer: The two types of stock are:
- Common
- Preferred
Common stock has voting rights (one per share) on important company issues and may receive dividends.
Preferred stock usually has no voting rights, but is first in line for dividends and first call on assets if the company is dissolved. Investors buy preferred stock for the dividend income.
Question: How are Daily Stock Prices Set?
Answer: For actively traded stocks, the price is set by supply and demand. If there are more buyers than sellers for a particular stock, the price will rise.
If there are more sellers than buyers, the price will fall.
Economic, political, or natural disaster events may influence whether there will be more buyers or sellers for a particular stock. If the events are significant, they may affect the entire market and move it up or down.
Question: What is the Role of Risk in Investing?
Answer: Risk is part of investing. It is the price you pay for a potential reward. The greater the risk, the greater the potential reward should be.
Tags: FAQ Stock and Share