The stock market has been the key player for anyone looking to significantly build wealth for many years. It involves buying and selling investments in various companies and across industries. Everyone can participate in the stock market at their comfort level, though there are many important factors to consider.
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If you’ve considered entering the stock market, you’ve likely had many questions surrounding the process and the overall benefits. In this article, we’re going through the important details surrounding the stock market to help our readers take their first steps with confidence.
The Basics
When you purchase the stock of a public company, you’re essentially purchasing a small piece of that company. As the company thrives or dips, its standing in the market may change, and the value of your stock will either increase or decrease.
How Does It Work?
The concept of the stock market is straightforward — it lets buyers and sellers negotiate and conduct trades. Through a network of exchanges, companies will list available shares of their stock through an IPO — initial public offering — and investors purchase those shares. These shares can be bought and sold regularly, and the supply and demand will help determine the current price for each stock.
Types of Stocks
There are over a dozen types of stocks, but we’ll outline three of the key stock options which can be explored in-depth at your leisure.
Common stock is the type of stock that most people invest in — it represents partial ownership or a stake in a company. If the company is dissolved, shareholders are entitled to receive a portion of the value of any leftover assets. While there is seemingly endless potential, there is also a risk of losing the entire investment if the company does not have any leftover assets. You can learn more about investing in the stock market here.
Preferred stock provides shareholders with a preference over common shareholders to receive a certain amount of money if the company goes under.
Lastly, growth stocks offer an enticing higher return, but they come at a higher risk. These types of stocks have businesses that have access to strong customer demand. Competition, in this case, can be intense, and if a rival business disrupts the businesses’ growth, it can tank their stock and lower your current investment value.
It’s a Long-Term Investment
When it comes to investing in the stock market, patience is key. The stock market is designed to be played over the long term in order to see true accumulated wealth. While it can be daunting to see your invested capital rise and fall, if you’ve invested wisely, you should be able to see it rise over time, and you can decide in years if it’s time to withdraw.
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