Stocks for Beginners
What is a Stock?
A stock is ownership. A share of stock in a company is part ownership in a company. If you own one share of stock in a company that has a total of 100 shares, you own 1% of the company. Normally, corporations have 100,000 or more shares outstanding at a time.
Corporations issue shares of stock in order to raise money for the company. If they need money to fund growth within the company, they will issue stocks and sell them each for a certain amount of money. Those stocks are then continuously bought and sold. The company may choose to buy them back and retire them, but generally they are always bought and sold.
As an owner of the company, referred to as a shareholder, you do get certain privileges, but not many. You are able to vote for certain things dependent upon how many shares you have. If you have a significant number of shares, you can have more pull within the company. You would have to have a very large percentage in order to do that.
How do you Make Money from Stocks?
There are two basic ways to make money from stocks. You can earn money through capital gains and/or dividends. If you hold onto the stocks, the company may decide to issue dividends. They are not required to issue dividends but if they do, they are usually issued on a quarterly basis. They may do something like $.25 per share per quarter. A dividend is part of the profit that the company shares with their shareholders.
For example, a company may give $.25 per share if you own 1000 shares, you will receive $250. If that is per quarter, you will receive $1000 in the year. That may seem like a lot of money, but it really depends on the price you paid for the share whether that is a good return.
That is why most people make more money through capital gains. A capital gain is money made when you buy and sell a share of stock. For example, if you buy a share of stock for $10 and then sell it for $15, you have made a capital gain of five dollars.
If you employ a buy-and-hold strategy, you may decide to buy a certain amount of shares of stock of a company and then hold it for six months or longer, sometimes their many years, until you decide to sell for whatever reason. Another example would be if you bought 100 shares of a stock at a price of $25 per share, you would pay $2500. If in 10 years the price per share is $40 and you decide to sell, you will sell for $4000 and have capital gains of $1500.
Can you Make Money from Stocks if you’re a Beginner?
You do not have to be a special kind of person in order to make money from stocks. Even a beginner can make money with stocks. You also need to have a ton of money to get started and to profit. You can start with $100 and add a little bit each month. Sometime down the road, you can build your net worth incredibly by consistently investing in stocks and investing more and more money.