What Are Stocks and How Can They Benefit You?
Stocks. You’ve probably heard the term flung about all over the place and when you hear it uttered a certain image probably springs to mind: a crowded room of individuals in business attire rapidly answering phones, making notes, shouting out figures and waving their arms around in the air. But do you know what stocks actually are? Are you aware of how you can engage with them and what potential financial benefits they hold for you? Well, if you haven’t asked these questions before, it’s about time that you start asking now! Here are all of the basics that you could possibly need to know about stocks, shares and the stock market in general.
What is a Stock?
So, let’s start with the bare bones definition of stocks. A stock, in short, is a share in the ownership of a company. It represents an individual’s claim on the given company’ assets and earnings. The more stocks you have, the greater the ownership stake you hold in the given business. So, let’s give an example. Mercadolibre is an Argentine company incorporated in the United States. It operates online marketplaces dedicated to E-commerce and online auctions. Its main site is mercadolibre.com. If you invest in mercadolibre stock, you automatically gain a share of the company. It really is as simple as that!
How Much of the Company Do You Control With Your Share?
So, now you may be asking what your given share in a company entitles you to. After all, you do not directly own the company, so there must be something else in it for you. Well, the more shares you hold, the more authority you hold in the business’ direction. If you have a majority, your voting power increases and you have a larger say in what happens. You get to appoint its board of directors. These are the individuals who increase the value of the corporation (and thus the value of your share) through their appointment of the CEO, managers, and officers.
Now for the nitty gritty. You’ve invested cash into a share of this company for more than a governing say in what goes on within the company. You’ve done it to make a little profit. When you are a shareholder, you are entitled to a portion of the company’s profits. This is the foundation of your stock’s value. What you need to bear in mind before buying a stock, however, is that many companies do not pay out profit in dividends. They, instead, put profits back into the company, increasing the value of your share. This is known as retaining earnings. The more the company puts into itself, the better its products or services and the more money they can make again. The company grows, the value of your share grows and you can then sell this share on at the right time to gain a larger amount of money back for yourself.
As you can see, on a surface level, investing in shares can make you a whole lot of money if you sell on at the right time. You don’t necessarily have to be a genius with numbers and know the intricacies of the stock market to take part!