In its simplest form, a stock represents ownership in a company. As you own more shares of a company, your equity is greater in that particular corporation. You can make money on a stock based on its appreciation and the amount of a dividend the stock pays out to its holder. Conversely, there may be no dividends and a stock can drop in value below what you paid for it.
Stocks might be one of the more complicated investments we have. Without clear guidance or putting the time into learning about stocks, it is easy to make a wrong decision. Very often, you might think you are looking at two stocks that seem similar, but you are actually comparing apples and oranges.
Stock typically takes the form of shares that are either common stock or preferred stock. Common stock typically carries voting rights exercised in corporate decisions. Preferred stock does not possess such rights, but it is legally entitled to receive a certain amount of dividends before any can go to other shareholders. You can purchase stocks as individual shares in a particular company, or you can buy shares in a fund. A stock fund consists of individual stocks. The concept behind them is that you are spreading your money out over a variety of companies so that no one poorly performing stock can flush all of your money down the drain.
The appeal of the stock market is that it is the major financial investment talked about the most. The media uses it as a barometer of how the economy is doing. Investment advisors tout its overall growth and sustainability as a place to put your money. When compared to what banks offer in interest these days, it seems like a no-brainer to jump into the stock market where you can make “real money.”
However, it is important to look at actual statistics and the story behind them to separate fact from propaganda. According to MeasuringWorth.com, is a nonprofit organization and represent some of the finest universities in the United States and Great Britain such as Harvard, Stanford, New York, Vanderbilt, Oxford and Northwestern; here is a chart showing the actual growth rate of the stock market from 1885 through 2020 of the Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ. Please note – the “S&P 500” was first reported daily on March 4, 1957, and the “NASDAQ” started on February 5, 1971.