There are enough investment assets out there to make your head spin. You already know you don’t want to put all your eggs in one basket, but you also need to know where to focus.Here’s a closer look at one of your options.
What is a Stock?
Stocks sound like some imaginary economic concept, but in reality, stocks are shares in a company — so when you buy stocks in a company, you’re essentially buying a small piece of it. The better the company is doing, the more your piece of it is worth.
Compared to their potential gains, which have no arbitrary or enforced limit, stocks provide an investment option with very low loss. The only money you can lose is the money you’ve invested.
That’s it. Stocks don’t go negative, and you are never liable for more than what you initially paid for. So, if you invest $1000 in a certain stock, you’re only out that $1000 in the event that stock does poorly, and it’s possible to reduce that loss by selling the stocks before you reach that point.
High Potential Gains
While your potential loss is limited to whatever money you put in, your gains are not limited at all. If the company performs well, the value of each stock increases.
Compared with other options, like bonds or even simple savings accounts, this is huge. You’re taking a chance of losing that $1000 that you invested in the last section, but you could gain so much more. Some of the top-performing stocks have increased over 50% in value this year to date.
Stocks Are (Almost) Liquid
Unlike some other investment options, like real estate, stocks are very easy to convert to cash. When you buy stocks, you’re not stuck with them. If you pick one that tanks the next day, you can sell right away to cut your losses. If you bought a house as an investment, though, you can’t get rid of it that quickly, and it will often take longer to appreciate in value.
These are just some of the reasons that stocks are such a popular choice for investors. The first step in investing is demystifying the market.