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Stocks and Bonds

Stocks

A share of stock is a piece of ownership in a company. How big a piece depends on how many shares of stock there are. Companies that offer stock for sale to the public are known as publicly held companies.

There are different types of stock. Common stock is what people normally think of when they hear the word "stock." It is by far the most widely available kind of ownership. Preferred stock has certain protections against a company's financial troubles, but tends to grow more slowly in value. A corporation may also have classes of stock with different dividend policies, purposes, or restrictions.

Many stocks pay dividends, based on the profits of the company. These will generally fluctuate from year to year. The most stable dividends are paid by blue-chip companies like GE. Stocks with stable, high dividends are called income stocks. These are generally older, established companies and utilities. Young, growing companies or ones in high-tech fields may not pay any dividends at all. Instead, they will put earnings back into the company to make it grow faster. These stocks are called growth or aggressive growth stocks.

Buying Individual Stocks

Many people buy stock from a "traditional" broker that you may find at a bank or credit union. In order to make investment decisions, you need to either spend a lot of time doing research, or find an investment representative you can rely on.

Whether you pick the stock or your investment representative helps you, the trade will need to be executed (buy the shares). The amount that is charged to buy a stock is called a commission. Commissions can vary from broker to broker.

If the main part of your portfolio is going to be in individual stocks, make sure you are sufficiently diversified. If you don't have a lot of money to invest, stock mutual funds may be able to give you more diversification at a lower cost.

Many employees would like to own a piece of the company they work for. Some companies offer a stock purchase program that eliminates brokerage fees. This can be a cost-effective way to reap the rewards of your company's success. While participating in the growth of your company is good, be careful not to have too much of your investment assets concentrated in one stock. It is important to diversify.

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