If you’re someone like me, a college student with limited knowledge on financial literacy you may get overwhelmed or confused with a word like “stocks” dun dun dun… My goal is to alleviate the confusion associated with stocks and explain their significance and benefits in a manner that is easy to comprehend through the lens of Forbes Advisor.
In the simplest terms, stocks are units of ownership in a company. The units of ownership is called a share. Ultimately, they are used to build wealth and for the sake of Financial Joy School, building generational wealth amongst the black community.
So basically, when an individual buys stocks they are purchasing a partial ownership in a company. Yes, you can own Apple, Tesla, Nike, Disney, Amazon, and many more. This is the basics in understanding stocks.
Understanding stocks includes understanding the title of the person who owns stocks. That person is called a stockholder. Stockholders are entitled to various benefits such as voting rights at company’s annual shareholder meetings, dividends which are a share of the company’s profits (not every company gives a dividends), and capital appreciation (the increase/decrease of value based on the increase/decrease of stock price).
It is important to note however, that stockholder entitlement does not include the involvement of the daily duties of a company.
Let’s sum this up: a stock represents a share in the ownership of a company, which allows you a claim on the company’s earnings and assets. Stockholders are partial owners of the company.
DIFFERENT TYPES OF STOCK & CLASSES
There are various types of stock, the most common being Common Stock & Preferred Stock with each varying in the extent of voting rights and dividend entitlement. Common stockholders are the last group to have their investments recouped. Although common stockholders are entitled to dividends, they are not guaranteed to receive dividend payments.
Ultimately, it is the company’s decision whether or not to pay dividends depending on how they see fit. Now, Preferred stockholders are entitled to receive dividend payments before common stockholders however, shares of preferred stock typically don’t provide voting rights.
There are also alphabetic classes associated with stock which include A, B, & C. Class A stock gets one vote for each share. Class B stock is held by the company’s founders and gets 10 votes per share. Class B shares are not publicly traded and exist to help the founders retain control over the company. Class C stock has no voting rights and is largely held by employees and some common shareholders (Forbes).
All investors who invest in the Stockmarket are usually Class A Stocks. So, if you buy a stock you will have voters rights and you can help make decisions for the company, one vote at a time.
UNDERSTANDING STOCKS & WHY OWN STOCKS?
Ultimately, owning stocks allows individuals the opportunity to potentially share in the profits of the world’s most successful companies. Stocks historically has been a great investment overtime and with any investment, there are risks.
Despite the potential risks, many investors use stocks as a core method to increase their savings and plan for long-term goals like retirement and educational savings. In the long run, your savings goes up as the stock prices go up.
If you have a retirement account you are already invested in stocks. Why not invest even more to help you build generational wealth. Stocks can help you ensure the next generations are better off financially, you can do it….
Learn more about investing in stocks CLICK HERE…
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