In order to grow and develop, companies need to invest in their businesses. Stock markets provide them with an opportunity to raise money by selling parts of their businesses as shares, also known as ‘stocks’. Just like a slice of cake, a ’share’ is exactly that. If you buy one, you own a small part of that company and become a shareholder.
Why invest in stocks?When you invest your money in the stock market, it has the potential to grow quicker than if you leave it in a savings account, albeit with more risk. There are two ways that you can make money from stocks:
Capital growthSell stocks for more than you bought them for. The market price of stocks fluctuates due to supply and demand, driven by the attractiveness of a company and its performance.
IncomeReceive regular payments in the form of dividends, which are your stock of company profits.
What are the stocks risks?Stocks prices can change suddenly, for example, due to a company announcement. Stocks are therefore more suitable as a medium/long-term investment, since they will have more time to recover from any dips. It’s a case of balancing risk and reward, for example, small, start-up firms are more risky than larger, more established companies (‘blue chips’), but might offer faster growth. It’s therefore a good idea to set goals and timescales before getting started.
How to buy stocks and sharesSimply open an account and pay in some money. You’ll then be ready to buy and sell stocks online (or over the phone for no extra charge) with us. Every day in the USA, hundreds of thousands of deals take place, trading several billion dollars worth of stocks. You can buy stocks in a variety of ways:
- Individual companies, which you’ll need to keep a close eye on.
- Collective investments, such as funds or investment trusts, which can spread risk and offer you a more ‘hands off’ approach.