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Stocks
Historically, stocks have outperformed fixed income securities and outpaced the rate of inflation. Of course, past performance is no guarantee of future results. While no one knows in which direction the market will head during any given day, month, or year, having a long-term perspective will help you ride out any short-term volatility in the stock market.
What are stocks?
Stocks represent ownership in a company. When you purchase a share of stock, you own a part -no matter how small - of that company. As an owner you become entitled to your share of that company's earnings and assets. You make money if the stock increases in value or if the company distributes some (or all) of its profits in the form of dividends.
If the company's stock price falls, so does the value of your shares, and you would lose money if you had to sell your shares at that time.
The company's performance can have a major impact on the stock price, but so do other factors, such as general market conditions or prospects for the company's industry as a whole.
Types of Stock
Most corporations issue two types of stocks, preferred and common. Preferred stockholders usually receive a fixed dividend, which must be paid before common stockholders' dividends. Similarly, if the company fails or liquidates, preferred stockholders would be compensated (subject to the amount of funds available) from the sale of assets before common stockholders.
Owners of common stock may or may not receive dividends, depending on the company's financial health and dividend policy. Common stockholders have the right to attend the annual shareholders' meeting and vote for directors and other important matters.
For additional information, please see:
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