Can I Buy Stock?
Sure, buying stock is easy. Even the Etrade Baby can do it. Click a button and you are done. But do you know what you are buying? Most twenty year olds may watch the green and red ticker symbols scroll across the screen on news channels and think that’s what a stock is. But in truth, a stock is not a choice combination of letters to add to your portfolio. Nor is it the floating number associated with its price. It has more meaning and represents a larger value than that.
Buying a stock entitles you to a partial ownership of that company, based on how many stocks you own. It represents a part of the equity in the company. This value is commonly referred to as equity ownership.
Old Meets the New…
In the early days, companies actually issued stock certificates. It gave the stockholder a sense of ownership. However, advances in technology has made becoming a stockholder less personal. The simplicity of purchasing a stock through an online broker such as Etrade has reduced the need for issuing paper shares to individual owners. But this is not to say that it’s a horrible innovation. Billions of stocks are traded electronically each day at a fraction of the cost, making the stock market more efficient and user friendly.
Stock Is Not Just a Stock
Stock purchases can get a lot more complicated, depending on the company that issued it. It it’s basic form however, there are two types: common stock and preferred stock.
Common stock allows the shareholder to vote on issues in the company. Common stock shareholders are also entitled to any dividends that are issued. Dividends are periodic payments made to shareholders outside the value of the stock, as determined by the company.
Preferred stock is similar to common stock, but it usually comes at a premium (meaning it has a higher price) because it has other bonuses. This can include, but is not limited to entitling shareholders to receive payment and dividends before common stock shareholders. This can be especially important when/ if the company goes bankrupt or liquidates their assets. In the event, any debt that the company had is paid before the equity holders (shareholders) are paid, but the preferred stock shareholders will be paid before common stock shareholders. The trade-off is that the preferred stock shareholders do not have voting rights like common stock shareholders.
So What Should I Do?
Nobody can really tell you what to buy. Brokers merly make suggestions. And more often than not, you pay them for their “expertise,” but in the long run, you are better off not paying someone to lose your money for you. It is important that you decide which type of stock is best for you based on your investment goals and requirements. Take the time to research the company and make sure you would like to Own it. If not, look some more. Stockbrokers have disclaimers about investing for a reason. You should always read about the type of ownership that you are buying and understand the risks that you take as an investor. A little due diligence goes a long way.
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