Tutorial,Stocks,-By,Ian,Filipp business, insurance A Tutorial on Stocks -By Ian Filippini

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If there are one million sharesoutstanding of Company X, and you own one share, you in effect ownone-millionth of that company - its assets and the profits it is ableto produce over time. The more shares you own, the more you benefitfrom a company's growth.Why Do Companies IssueStock?Businesses need money, or"capital," to grow and thrive. A company will typicallyissue stock to raise money for financing operations, acquiring newequipment or other companies, fund research and development, andother such uses. Another term for raising moneythrough stock issuance is "equity financing," and thecapital produced through this method is referred to as equitycapital. Companies might also issue bonds to finance variousactivities; this is referred to as "debt issuance."What Categories of StockExist?Also called "equities,"stock can be categorized several ways. The first is by size, or"market capitalization": A company's net marketcapitalization is measured by its share price multiplied by thenumber of shares on the market. To use the example above, if CompanyX's share price is $10, its market capitalization (or "cap"for short) would be $10,000,000 - one million shares outstandingmultiplied by $10 per share. Generally, companies with $1 to $1.5billion in market capitalization are considered "small cap"stocks, those with between $1-1.5 billion and $5 billion areconsidered "mid cap" stocks, and those with market capsabove $5 billion are considered "large cap" stocks.Another way to categorize stocksis by style. "Growth" stocks are those considered to havethe potential to expand their sales, revenue, and profitabilityquickly. "Value" stocks are those believed to beundervalued by investors and thus selling for less than theirintrinsic value.A third way to divide stocks is bygeography. Stocks of U.S. companies are considered "domestic"stocks, while those of companies outside the U.S. are considered"international" stocks. Typically, international equitiesare further divided into "developed" (such as Europe orJapan) or "emerging" (China, Southeast Asia, Latin America)markets. Foreign investing involves additional risks, such ascurrency fluctuations and political uncertainty. Investment returnand principal uncertainty. Investment return and principal value willfluctuate so shares, when redeemed, may be worth more or less thantheir original costs.Finally, stocks can be categorizedby sector and industry. Common categories include technology,communication, healthcare, energy, financial services, consumer goodsand basic materials, which may respond differently to economicchanges.How Can I Buy Stocks?Typically, investors purchasestocks through entities known as exchanges. These marketplacesinclude the New York Stock Exchange, the American Stock Exchange, andthe NASDAQ Stock Market. The exchanges are merely a way to connectthose who want to buy shares with those willing to sell them. How doyou know what a stock is selling for? Stock prices, or "quotes,"can be located in newspapers, on certain television programs, andthrough the Internet.Another way to own stocks isthrough mutual funds. Why Should Individuals OwnStocks?Over time, stocks have proventhemselves to be the most powerful way to accumulate wealth,outpacing bonds, government securities, and inflation. Stocks provideindividuals with the opportunity to benefit from growth in the U.S.economy as companies expand their sales and profits.Stockholders can benefit fromowning stocks in two ways: First, through price appreciation, as theprice of their shares goes up; and second, through dividends, whichmany companies pay on a regular basis. Together, these factors makeup your stock's total return.What About the Risk?Many people have heard of orexperienced events such as "Black Tuesday," in October1929, when the Dow Jones Industrial Average nosedived 12.8%, and,more recently, "Black Monday" in October 1987, when the Dowlost 22.6% of its value (still the worst single trading day onrecord). More recently, we saw stomach-churning drops in 1997 and1998, and endured a long bear market from 2000 through 2002.And it is true that, in the shortterm, investing in the stock market can be risky. Markets tend to bevolatile, responding quickly and forcefully to events and news suchas the 9/11 terrorist attacks, rumors of economic changes,presidential elections, and geopolitical happenings. Individualstocks face risks as well. A company, because of poor businessconditions or poor management, could become unable to make dividendpayments. Or it could fail completely, leaving your stock essentiallyworthless. Over the long term, however,stocks have earned higher and more positive returns than any otherfinancial investment. These higher returns help offset the risks ofinvesting in stocks.Diversification Can ReduceRiskAmong the risks you face in thestock market is the risk that you will have to sell an investment forless than you paid for it. If you buy stock in many differentcompanies, in many different sectors of the market, you can minimizeyour risk. After all, it is highly unlikely that every company inwhich you have invested will suffer at the same time. Howeverdiversification does not protect against loss.You can also minimize your risk byinvesting some money in international stocks. Historically, when theU.S. stock market has dropped, markets in Europe and Asia havedropped less, or even risen in value. Although we live in anincreasingly global economy where economic events have an impacteverywhere, global diversification should still be a part of yourplan. What Role Should StocksPlay In Your Portfolio?In general, your stock marketinvestments should represent money you won't need for at least 10years. That time frame allows enough time for your investments toride out the inevitable growth/recession economic cycles andbull/bear market cycles. Certainly younger people investing for theirretirement should consider putting a substantial portion of theirfunds in stocks. One very general rule of thumb is that thepercentage of your invested assets should be at least 100 minus yourage - 70% for a 30-year-old. Investing in stocks may also beappropriate for retirees who don't need all of their money and aretrying to maximize what they will pass onto their heirs. Your bestbet is to work with a financial advisor to determine the optimalamount you should allocate to stocks.For more information please visitathttp://www.filippiniusa.com Article Tags: Benefit From, Market Capitalization, Stock Market