Investing Advice

Why invest in the stock market?

When you buy stock in a corporation, you own part of that company. This gives you a vote at annual shareholder meetings, and a right to a share of future profits.

When a company pays out profits to the shareholder, the money received is called a "dividend". The corporation's board of directors chooses when to declare a dividend and how much to pay. Most older and larger companies pay a regular dividend, most newer and smaller companies do not. Newer companies prefer to use profits for research and development, expansion into new markets, and “growing” the business.

The average investor buys stock hoping that the stock's price will rise, so the shares can be sold at a profit. This will happen if more investors want to buy stock in a company than wish to sell. Usually, the potential of a small dividend check is of little concern.

What is usually responsible for increased interest in a company's stock is the prospect of the company's sales and profits going up. A company who is a leader in a hot industry will usually see its share price rise dramatically.

Investors take the risk of the price falling because they hope to make more money in the market, than they can with safe investments such as bank CD's or government bonds.
 

The 30 Dow Companies, even though they are considered "blue chip", don't all pay good dividends. Microsoft doesn’t pay one, and 6 others are paying less than 1%. The average, historically 4.4%, is now a paltry 1.7%. Eastman Kodak’s 6.6% is great not because they pay a lot per share, but because their stock price has dropped so low that the dividend is high in relation to the share price. In 1960, S&P 500 companies paid out 65% of profits as dividends, but now only about 30% is distributed.

Other Stock Market Basics Topics:

  1. Stock Market Basics
  2. Why invest in the stock market?
  3. Why Sell Stock?
  4. How are shares bought and sold on the NASDAQ?
  5. How stocks are traded on the New York Stock Exchange
  6. What are ECNs?
  7. Supply and Demand
  8. American Stock Exchanges
  9. International Stock Exchange
  10. What fuels demand for a stock?
  11. More to Know About Stock Trading
  12. Limit Orders
  13. Market Capitalization
  14. Preferred Stock
  15. How to Buy Stock?
  16. How much money do you need to open a brokerage account?
  17. Money Market Funds
  18. Margin Loans and Investment
  19. Corporation Executive Pay
  20. How much money do you need to open a brokerage account?

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