What Is a Stock?

What Is a Stock?

A stock is a type of investment that represents a share of ownership in a company.

When you purchase a company’s stock, you’re purchasing a small piece of that company, called a share.

Stocks are also referred to as “equities” because shareholders have equity (ownership) in the company.

Equity is a piece of a company that holds value.

It is an asset you can own which has the potential to be sold for capital gain. Some stocks pay a dividend, which is a source of income.

The Role of Stocks

Stocks play an important role in your investment portfolio for a variety of reasons:

• Current or future income needs
• Potential for growth and wealth accumulation
• Potential for offsetting inflation

Stocks and equity-based mutual funds are an important part of almost any investment strategy.

Investors buy stocks that they think will go up in value over time.

As a stock investor, there are two basic ways you can make money:

Capital Gains

The first way stock investors make money is through growth.

If stock prices go up, the shares are worth more and the added value is referred to as a capital gain.

Share prices can go up or down.

If you sell for more than you paid, you earn a capital gain.

If you sell for less than you paid, the result is a capital loss.

Dividends

The second way is by receiving a dividend from the company.

Dividends are a portion of the company’s profits, typically paid out quarterly.

Companies don’t have to pay dividends to their shareholders and not all do.

Dividends are a way for companies to distribute revenue to investors, and one of the ways investors earn a return from investing in their stock.

It’s important to note that even companies that have historically paid a dividend can stop at any time.

So Many Choices, But We Are Here to Help

By the end of June 2019, it was estimated that approximately 630,000 companies were being publicly traded throughout the world.

With so many stocks available, it can be difficult to know which ones are best for you.

At Stratford Management Inc. we are very selective about the types of stocks we recommend.

We use a disciplined approach to find those that align with our investment philosophy and recommend you stick with quality, diversify and invest for the long term.