The notion of stocks

The notion of stocks
Investing
06:38, 10 October 2021
178
0

When a person buys stocks, it means that he becomes a part of the company. In other words, he buys an ownership part. For instance, if the client likes Apple, he can buy shares of this company. So, he really becomes a shareholder of the company.


When the company is rather successful, it means that the share prices are constantly increasing. What does it mean? It simply means that the company guarantees profits to the client. In other words, the client gets per cent from the invested money in shares. If everything is bad in the company, it means that the client may lose money. In this case, the investment return is dropping. The client earns less money, or even lose some part of it. In some cases, the client can lose all the invested money. 


The most important thing is to research stocks. In this case, the client is interested in potential profit. He must know if the company will work well in the near future. Sometimes it is hard to predict. So, there are experts who can help you how to invest money in certain stocks or shares. This is usually called diversification. This term implies keeping such investments as bonds, stocks or real estate.


When the client performs a diversification, it means that he doesn’t depend on a certain share. If one block of shares is dropping, another block can grow. The client can compensate for the losses by investing in other elements. In the case of diversification, the client reduces potential risks.
In the case of investing in shares, it is vitally important to perform diversification. It is reasonable to possess several shares by different companies. There are several ways of how to do it. These ways will be observed further.


Is it worth trusting brokers or make self-investments?
Before starting to invest, you should solve, whether you wish to buy and sell independently, with the broker or the financial adviser or with an investment firm. This decision basically will be based on two factors:

  • How many researches and effort you are ready to put?
  • Whether you are ready to pay the commission for the returns or not.

If you are ready to make efforts to invest independently, you can keep 100 % of the profit. Besides you can find a financial adviser or investment firm in your region. These private persons and the companies have resources for carrying out marketing researches and a choice of actions and securities for you, but they will take the commission from your income.


If you decide to invest independently, online broker sites are the cheapest and fast way to buy actions. Each broker will demand, that you have opened the account, or online, or having called in the company directly to help you.


Information about stocks
At the research of the specific action, you can see its information sheet to receive the important information, such as a symbol of a ticker of the action, a risk level, factor of expenses and the last parameters.


There is a set of seats where it is possible to find information on various types of share funds. The majority of broker sites offer educational information on separate actions and mutual funds. Besides, you can use such services, as Morningstar, for searching for investments and monitoring the share market; Morningstar Premium provides expert analysis and ratings which will help you to choose investments.
Below we shall explain, you usually find what types of information at the research of actions and what they mean.

Symbol of an exchange ticker
The symbol of the share fund, or ticker, is the shorthand name for the identification of this specific fund. The symbol of a ticker usually consists of several letters and usually is in parentheses after the long name of the action on an information sheet of actions.


By searching for share funds information on websites or sites of investment brokers you can use a symbol of a ticker. For example, by searching of shares Alibaba by a symbol of a ticker for these actions "BABA" is, therefore you should look for "BABA" on a website of the broker company.
There is a set of seats where it is possible to find information on various types of share funds. The majority of broker sites offer educational information on separate actions and mutual funds. Besides, you can use such services, as Morningstar, for searching for investments and monitoring the share market; Morningstar Premium provides expert analysis and ratings which will help you to choose investments.Below we shall explain, what types of information you usually find at the research of shares and what they mean.

Risk levels
Investment in the shares is interfaced with risks. Shares can grow or fall off in the price at any time, and to you, it is not guaranteed, that you will earn money. Shares are more risky investments than the savings account or the depositary certificate. It is so because they depend on the results of the activity of the company. Profit of investments in shares is not guaranteed how the Federal corporation on the insurance of contributions (FDIC) guarantees savings deposits up to certain sums.


When you invest in the shares, you have the potential to receive higher profit from investments than if you invested in less risky active. For example, the general index fund of share market Vanguard had profitableness of 13,82 % for the last 10-years period. In the meantime, the best interest rates under the savings account for the last 10 years made about 2 %. The compromise between a possibility to earn more money is an acceptance of greater risk.

In an information sheet of the shares, the level of its risk is underlined. shares can be riskier or less risky, depending on diversification funds and other factors. For example, in an information sheet for the General index fund of share market Vanguard the rating of risk is four of five which means, that it has risk above an average and higher potential profit. You can use this information for diversifications of the shares and the inclusion of various combinations of shares with higher and low-risk levels for the protection of your general investments.

Expense Ratio
In an information sheet about stocks, the factor of expense ratio is also underlined. The factor reflects, how much is the content of shares; is displayed in percentage and provided by the division of operational expenses of fund into average dollar cost of its actives. It is estimated as an annual payment to shareholders.


The factor reduces your investment profit. The more the factor is, the more commission fees you will pay, and the less money you will earn as a whole. For this reason, it is important to check up parity of expenses on a desirable stock. For example, at the moment of writing of this article in an information sheet under shares of Index fund of general share market Vanguard the factor of expenses at a rate of 0,04 % is underlined.

The last parameters
In an information sheet of shares, the last parameters of profit of shares for last year, five years, 10 years or even from the moment of creation of share funds are also given. This information can give you a parameter of potential future profit and force of the company (or the companies) in share funds. However pay attention, that the last results are not guaranteed performance of the future incomes.

The price of shares
The current market price of the shares or share funds is specified in an information sheet of shares. The price of shares hesitates routinely and also gives the information to you, whether to purchase one share on a certain day for a certain price or not. In general, it specifies the cost of the share.

Stock types
There are various types of shares and funds (collections of securities) in which you can invest, and each of them has advantages and restrictions, depending on your personal investment preferences. Below we shall briefly consider the basic types.
Individual shares


An individual share is a share of a certain company, such as Apple, IBM or others. 
In this case, diversification is low. The expense ratio is considered to be high. General risks are higher, but everything depends on the share.
How to purchase


First, you need to define separate shares which you wish to buy, and to define, how many shares you wish to get. You can buy separate shares through the broker company. If you have an investment adviser, he, as a rule, buys shares for you through the broker company.


You can buy as many shares as you desire. The price which you pay to purchase shares is equal to the market cost of shares at the date of your purchase. The simplest way to pay for shares is through an online broker through bank transfer which you can adjust as soon as you create an online account. The broker companies also can allow you to pay you in other ways, such as personal checks. You can contact directly the broker company chosen.

Some words about mutual funds
The shared fund which unites the money of shareholders for investment in the various companies refers to mutual funds. When you buy shares of a mutual fund, you can choose the fund consisting of 100% from shares, or a mixture of shares, bonds and other securities. You also can choose the mutual fund including the shares of the companies in certain branches.


High diversification. The expense ratio is higher than index funds and ETF, but lower, than the purchase of each separate share separately.
The risk level is adjusted; it can actively be supervised.

Active against Passive
Mutual funds can be operated actively or passively. As it is actively operated it has a financial adviser, who carries out researches and analysis to define, what shares should be included in the fund. The shares making actively operated fund will change eventually as the operating fund adviser continues to carry out researches and analysis. Owners of actively operated funds consider, that regular variation of the structure of the fund will bring it higher profit from investments.


Passively operated mutual funds, such as index funds (discussed below), are funds that represent wide diversification as a major part of the American or international share market. Owners of these funds buy the fund and keep it. They are not changing the structure of the fund because they consider, that in the course the average rate of profit will be the same or similar rate of profit as actively operating funds. Passive investments into shares - a good choice for owners who do not wish to waste time on researches.


How to purchase
As well as in the case of separate shares, you can independently buy mutual funds through an online broker, having created the online account. You can employ the investment adviser for a choice and purchases mutual funds for you and pay the adviser commissions each time when you make a purchase.
The prices of mutual funds pay off at the end of each trading day, therefore you can buy them only once in the day and at the appointed time.
Unlike separate shares, mutual funds usually require minimal monetary investments - the typical minimum is between $1000 - $3000, but for some funds, the price can reach $10000 or more. After you have opened a mutual fund, you can continue to invest in a fund in any quantity which you want.
Pay attention, that if you sell the securities at the price higher than the purchase price, it is considered a gain of the capital, and you should require its payment of income tax according to recommendations IRS.


Index funds
Index funds are similar to mutual funds as they contain shares of the various companies, as a rule, in different branches. The basic distinction between index funds and other mutual funds means that index funds always cope passively, the structure of securities, as a rule, does not change.


Index funds trace parameters of the certain market reference point (or "index"), such as index S*P 500 which traces 500 large companies of the USA. An index fund can contain all shares and bonds in the target index, or it may be a representative sample. For example, the Index fund of general share market Schwab is intended for tracking all share markets of the USA, including the small and large companies that make funds rather varied. What you will choose, depends on that, on what you wish to invest, and your tolerance to risk.Diversification is high. The expense ratio is lower than mutual funds and the purchase of separate shares.The risk level is adjusted. 


Pay attention, that as index funds have a lower expense ratio and, as a rule, work, as well as actively operated funds, owners of index funds, can receive higher profit when their funds work well. Index funds - a good choice for investors who want diversification. Low commissions and passively operating funds are the key characteristics.


How to purchase
As well as in the case of separate shares and mutual funds, you can independently buy index funds through sites of online brokers. Alternatively, you can employ the investment adviser for a choice and purchases of index funds for you and pay the broker the commission each time when you make a purchase.


As well as in the case of mutual funds, index funds usually require minimal investments cash. In the case of mutual funds, as soon as you open an index fund and make initial investments, you can continue to buy shares of funds in any quantity you want.
Pay attention, that as index funds assume much fewer purchases and sales than mutual funds. You receive a smaller gain of the capital that can make index funds.


Exchange-traded funds
The exchange trading fund (ETF) is similar to a mutual or index fund in the meaning that it is strongly diversified, but it makes operations as separate shares. ETF can consist of 100% of shares or a mixture of shares and bonds. ETF contains shares of the different companies - even hundreds or thousands of different companies, but is on sale under one price, as separate shares. For example, ETF expanded market Vanguard contains shares of the companies, in particular, in sectors of consumer goods, finance, power, healthcare, information technologies and real estate.Diversification is high. The expense ratio is lower than mutual funds and the purchase of separate shares.The risk level is adjusted.


How to purchase
ETF, as a rule, do not require greater minimal initial monetary investments as it is done by mutual funds and index funds. ETF is being traded as separate shares, therefore you can get only one action ETF, and you can get them at any time when commerce is opened. The price which you pay for the share depends on market cost ETF at the date of your purchase.
Though you can trade ETF at any moment within the working day, the majority of them are considered as passive investments, because it doesn’t have a real manager, who actively buys and sells. Because of this fact, ETF also receives a small gain of capital.


Stock types
There are several ways of how to buy separate shares or stock funds. 


Market order
The most widespread type of trading is the market order. It occurs when you place the order in the broker company, and the company immediately fills the order. If you buy shares under the market order, you pay a market price of the share fund at the time of setting the order. If you sell, you receive a prevailing market price of shares at the moment of setting the order by the buyer.
The limit orders


Purchase or sale of shares for a determined price refers to the limit order. You establish the limiting price, and the order is carried out when the buyers or the sellers are ready to complete this price.


Stop-order
Purchase or sale of the share when it reaches a certain market price refers to stop-order. First, you should establish stop-price; when the price of the share will exceed the set price by the owner, the order will be closed.


Stop-limit order
For stop-limit order, it is necessary to set a stop price. Secondly, you should set the limiting price. As soon as the action will exceed your stop price, the market order will be performed. When shares reach the limiting price, the broker company stops to buy or sell shares for you.


Conclusion
Investment in the shares assumes purchase shares of the separate companies or investment in many companies through various funds, such as mutual funds and index funds. Before independently choosing investments, you should study shares or funds which you are interested in, considering such information, as their risk levels, expense ratio, the last parameters and the current price. You can invest independently through the broker company or employ an investment adviser who will help you to operate your portfolio. Your choice of investments will depend on that, how much funds you are ready to invest and whether you are ready to pay the commission to the investment adviser.

Ctrl
Enter
Noticed a misTake
Highlight text and press Ctrl+Enter
Comments (0)
Top in this category