Requirement 5 (A)
Requirement
Common stocks
Common Stocks
Common stocks are owned investments. When you buy stock in a company, you own part of that company. If you buy stock in a large restaurant chain, for example, you own part of the company along with other people who bought stock in it.
Because you own part of the company, you share in any profits or losses. Stocks have the potential for a higher rate of return, but they are generally riskier than investments that pay a guaranteed rate of interest.
How It Works
- You buy shares of stock in a company.
- If the company does well, the value of the stock may rise.
- If the company has problems, the value of the stock may fall.
- Some companies pay dividends, which are payments to shareholders.
- The money you invest is not guaranteed.
Example
You buy stock in a large fast-food restaurant chain. If the company grows and earns more money, the value of your shares may increase. If the company loses money or becomes less popular, the value of your shares may decrease.
Helpful Tip:
Owning one stock can be risky because your money depends on one company. That is why diversification is important.
Now that you have discovered common stocks,
let’s study mutual funds.
