Written by S. Thompson | Posted in Investing |

Common stocks indicate a company’s ownership or equity. When a person learns how to buy stock online, they will then own shares and is technically an owner of the company. If a company has a thousand shares and a person buys 5 shares, he is entitled to 0.5% of the company’s profits. Several reasons why people hesitate to buy stocks include the following: creditors and the employees of the company get paid first before stockholders, the stock market is volatile at times and stock prices can be very unpredictable.

On the other hand, there are many people who still engage in the stock market despite the risks and the possible financial loses involved. One of the reasons behind stock investments is that stocks have an inflationary advantage. If there is a rise in inflation, the company is also able to sell its goods at a higher price. This is reflected in the company profits. Stockholders are able to gain more because a portion of the inflation-adjusted profits becomes allotted to them.

Additionally, companies usually pay their stockholders in dividends. These are portions of the company’s earnings which are given to stockholders regularly. Being paid dividends means that the stockholder has a regular source of cash benefits. If the company performs well, the dividends rise in proportion to the company’s profits.

Stockholders also have limited liability which means the total liability of the stockholder is limited to the price paid when the share was bought. A person who owns the stocks cannot be sued should someone file a case against the company or its employees. Moreover, stocks are very liquid; an investor can sell them the same day he purchases them.

In exchange for these advantages, the stockholder receives the highest risk. For this reason, people who conscientiously invest in stocks try to diversify their portfolio by buying stocks from different companies belonging to different industries. If you would like to learn more about the stock market, you should pick up one of the “Stock Market For Dummies” types of books you can find online or in book stores.

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