Gambling with Stocks
In theory, stock investing is like buying part ownership in a corporation. By purchasing stock, you give your money to the company in hopes that it can be used to grow the company. As a partial “owner” of the company, you are eligible to earn profit when the company does well. But if the company does poorly you are subject to lose money. Stock purchasing is associated with lots of fees. Often investors will turn to “experts” to develop their investment strategy and implement the purchase, which comes with a price. Even simple online stock services like E*Trade require fees for investing.
There are two main types of stock:
Common Stock- Common stock usually grants the investor privileges to attend annual shareholder meetings for the company and vote on company decisions and hear about the company’s standing. Common stock is directly dependent on the company’s growth, making it riskier than preferred stock, but also has higher potential for gains.
Preferred Stock- Preferred stock generally does not grant voting rights to the investor. This stock is not directly tied to the company’s growth, as it acts somewhat like a bond, paying in fixed dividends that are tied to interest rates as long as the company is profiting. Preferred stock gets priority in receiving dividends. Also, in the event the company goes bankrupt, preferred stockholders get priority in receiving any payments from liquidation of the company, making preferred stock a little bit safer than common stock.
In theory, stock investments seem simple and very advantageous for a clever investor. However, stock investments are far from simple. Perhaps the most troubling aspect to stock investing is how uninformed, and often misinformed, the investor is. Even common stockholders, who can vote at annual meetings, have extremely limited say in how their money is put to work in the company. Stock investors are also routinely victimized by insiders on Wall Street who share information in secrecy and manipulate how the stock market behaves on a daily basis.
Stock investing is a gamble – you cannot predict if the company you invest will do well and you don’t know if you are told the truth about how your money is being invested.
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The information contained in this page is strictly for educational purposes and is not intended to provide specific financial advice. First Senior Financial Group does not recommend or sell securities to anyone at any time.