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Saturday, August 2, 2008

Equities

From The Hoss's Mouth

Equities or stocks as they are more commonly known are shares in a business and are today's topic in Hoss Cents Free Financial Money Magazine. The purchase of an equity (stock) entitles you become a part owner in that business albeit sometimes a very, very small part. Depending on the type of equity purchased you may have a right to vote at shareholders meetings and to collect dividends. Dividends are that part of the company's profit that is shared with the stockholders. Not all profits are divided amongst the owners. There is any number of ways a company will use some of the profits for improving the business. Not unlike a consortium that owns a race horse, if they show a profit they may choose to buy another horse or horses or they may purchase a new barn to house their growing stable.

Stock exchanges are the place was stocks (equities) are normally bought and sold. They can be purchased through over the counter markets or alternative trading systems. You can also purchase them over the internet but you have to have an account with a brokerage company.


Equities


Investing in equities can produce a large return but it can also cost you a lot of money and in some cases you can lose most or all of what you have invested. You incur high risk for the possibility of a high rate of return.

You make money when a stock (equity) increases in value or if and when dividends are paid. When you sell a stock for more than what you paid for it you have a capital gain. If you sell for less, you have a capital loss. In each case you must report this on your tax return.

There is no guarantee that you will ever make money. Stock values often fluctuate and sometimes by huge amounts (can you spell Enron). Many factors determine what a stock is worth. The overall performance of the company, its size, economic conditions, competition and financial stability are but a few of these factors. If you are one of those people whose risk tolerance assessment shows you do not take kindly to these types of fluctuations in value The Hoss suggests you stay with Fixed Income Investments.

It's time for The Hoss to enjoy the company of Mrs. Hoss, so till next time,

Stay on track,

The Hoss

Next Hoss Cents Money Magazine Post: Shares, What are They

Previous Post: Fixed Income Securities

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