Stocks

Investing in Stocks and Bonds

Stocks are also called securities or shares. Stocks are among the most commonly used investment vehicles next to mutual funds and IRAs. When you buy stocks what you are actually buying is a small part of that particular company. Stocks are a very good investment as they can yield very high returns. Stock held in a solid company can turn a person into a millionaire over the long term.

The way in which stocks work is that you buy a share in a company and then hold on to it while the company grows; as the company grows the value of the share increases. A well run company's stocks can double and even triple in value over the years, so someone who bought into that company at the beginning will have shares worth quite a lot by the time they decide to sell. For example, if you invested in 100 Microsoft shares in 1986 when the company first went public and the shares were priced at around $25.00/share and sold them in February of 1999 when they were priced at $175.00/share you would have made a profit of fifteen thousand dollars; an amount six times greater than your initial investment – not bad for less than ten years.

The down side to stocks is that they are very fickle and they tend to follow the market trends - one day the price can be up and the next day it can be down. People who do not have a long term objective or do not have a high tolerance for risk may not enjoy investing in stocks due to their volatility. However, it is possible to minimize this risk by investing in blue chip stocks, which are shares in companies that tend to be very stable and in industries that have very secure and well-established returns and growth. People who know how to invest wisely in stocks can definitely turn a tidy profit.

Aside from their volatility the other drawback of stocks is knowing in which companies to invest. By doing some research and seeking the advice of a good investment professional you will be able to build a portfolio worthy of Warren Buffet himself!