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:

Did you find the information you were looking for?

After reading the above article, what is still your biggest question?

Get Weekly Investing Advice Receive free practical investment advice and tips delivered weekly to your email box with contributions from financial planners, investors, and financing and loan professionals.
I want to ask a question and receive investment tips. I only want to ask a question and don't want helpful advice.
E-Mail Address:
Your Name:

To find more investing and stock related websites input the phrase "investing advice" directly into the search box below or simply type in your own search phrase to see over 1 million other investing, stocks and online trading websites.

Who's Not Investing?

Millions marry and start families each year without taking basic steps to make sure their future, as well as their children's, is financially secure.

According to a recent survey by Princeton University and the Consumer Federation of America, 70% of households with incomes under $50,000 a year have retirement savings of less than $5,000. This same report said "most Americans are living paycheck to paycheck".

Learn more about how you can plan, save and invest smart for your family's future.

Investing Money Sections

	Why Invest Money?
	Investment Basics
	Saving Money
	Stock Market History
	Stock Market Basics
	Stock Market Indexes
	Stock Market Investing
	Mutual Funds
	Investing Advice
	Retirement Planning
	Saving for College
	Financial Planners
	Investment Opportunities
	Financial Charts
	Investment Terms
	Return Home

Home | Contact Us | Privacy | Site Map | Legal notices