Stocks represent a share of ownership in a company. They are a powerful tool for wealth-building, allowing investors to participate in a company’s growth while providing businesses with funding to expand.

How Stocks Work

• Stock Issuance:
• Companies raise money by selling shares through an Initial Public Offering (IPO).

• After the IPO, shares are traded on stock exchanges between investors.

• Buying & Selling:

• Investors buy stocks through brokerage accounts, often using online trading platforms.

• Trades are handled on exchanges like the NYSE or Nasdaq.

• Making Money with Stocks:

• Capital Gains: Sell shares at a higher price than purchased (e.g., buy at $200, sell at $300).
• Dividends: Some companies pay shareholders a portion of their profits, typically quarterly.

Why Own Stocks?

• Wealth Building:
• Historically, the stock market has returned about 10% annually (7%-8% after inflation).

• A $1,000 investment 30 years ago could grow to over $8,000 today.

• Diversification:

• Owning stocks across various industries reduces risk.
• Mutual funds and index funds simplify this process.

Types of Stocks

• Common Stock:
• Includes voting rights.

• May pay dividends.

• Preferred Stock:

• No voting rights but often provides fixed dividends.

Risks and Considerations

• Market Volatility:
• Prices fluctuate due to market trends or company-specific events.

• Losses are possible if a stock's value decreases.

• Diversification Mitigates Risk:

• Avoid relying on one stock.
• Invest in funds like mutual funds or ETFs for broad exposure.

How to Get Started

• Open a Brokerage Account:

• Choose platforms like Charles Schwab, Robinhood, or Public.

• Research Investments:

• Look into companies, industries, or funds that align with your goals.

• Think Long-Term:

• Hold onto stocks to ride out market fluctuations and benefit from long-term growth.

The Bottom Line

• Stocks allow you to own a piece of a company’s success.
• While they carry risks, they are key to long-term wealth building.
• Building a diversified portfolio through direct stocks or mutual funds can help achieve financial goals.

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