Stocks; forming a foundation

“Stocks Chart Graph Shows Increase Investment Earnings” by Stuart Miles from freedigitalphotos.net

“Stocks Chart Graph Shows Increase Investment Earnings” by Stuart Miles from freedigitalphotos.net

In order to form a good understanding of stocks, we need to start from the beginning.

What are stocks?  Companies raise money by issuing shares of stock.  By purchasing and holding the stock, you are part owner in the company.  As a company earns more, the stock increases in value and investors are willing to pay more for the stock.

A stock you may have purchased for $1 per share over time may eventually be worth $11. If you sell the stock at that time for $11 you have recognized a 1000% gain.  However, if you hold the stock and it rises, but then falls to $.10 per share, you now recognize a big loss.  The value of the stock can be unstable and fluctuate, which can risk your capital.

How much risk are you willing to take?  Please comment.

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