So let’s dig into stocks and why I recommend them for every investor. But first, why do companies issue stock in the first place?
Companies issue stock to raise money from investors—it’s that simple. Maybe a company needs to fund groundbreaking research, open a division in a foreign country, or hire a crew of talented engineers.
Stocks are intangible assets that give you ownership in a company. That’s why they’re also known as equities or equity investments. Owning stock entitles you to part of a company’s earnings and assets.
As I mentioned, stocks can increase in value, which is called capital appreciation. As I’m writing this episode, Facebook (FB ) and Apple (AAPL ) stock can be purchased on the NASDAQ exchange for $59.83 and $593.76 per share respectively. Walt Disney (DIS ) stock is selling on the New York Stock Exchange for $15.03.
So, if you buy Walt Disney at $15.03 per share and the price goes up to $30, you can sell it for a gain of $14.79 ($30 - $15.03). You can easily find current stock price quotes on sites like Google Finance and Yahoo Finance.
In addition to capital appreciation, some stocks also allow you to be paid a portion of company profits. That's called a dividend stock and it distributes dividend payments to stockholders.
For instance, right now Discover (DFS ) pays a dividend of $0.24 a share. That means if you own 1,000 shares of Discover, you’d be paid $240 in dividends over the course of a year.
Dividend stocks pay you even when the share price goes down, so owning them is a smart way to hedge against potential market losses. You can find a list of dividend stocks on a site like Morningstar. com.
