Have you ever heard someone talking about a “hot stock tip” or “playing the markets”? Were you too embarrassed to admit that you don’t really know what a stock is or how to buy one? Then keep reading!
What is a stock?
Stocks are shares in companies. If you buy a share of a company – let’s use Google as an example, then you are now a part-owner of Google.
Does this mean you can enjoy a free lunch at the employee cafeteria? Of course not – large companies issue many shares so if you only own a few then your “ownership” stake is very small. You normally get a vote for each share you own, so you do get some say in the management of the company.
Are stocks risky?
Yes, they are. This doesn’t mean however that if you invest in stocks that you will necessarily lose money. What it means is that because the stock price changes over time and can go up or down, then there is a chance that you might make money, break even or lose money on your investment. If you were to buy the stock of a company that eventually goes bankrupt then you will lose your entire investment.
How do I buy stocks?
You can buy stocks of individual companies if you have an account set up at a stock brokerage such as Vanguard or E-trade. Many investors don’t buy individual stocks but would rather buy a mutual fund or index fund or exchange traded fund which is like a basket of stocks. Some funds are managed by professional fund managers whereas index funds and exchange traded funds are mostly based on stock market indexes.