Know About Stocks and Markets

• A share of stock is a unit of ownership in a company. Preferred stocks enjoy priority in payment of dividends while common stocks have voting rights and have higher potential for value appreciation. Returns from stocks come from dividends and price appreciation. The value of a stock goes higher as buyers up bids for stocks of companies with good growth in earnings and dividends, or with the expectation of such growth. Prices are a function of demand and supply of buyers and sellers and their perception of the company, the industry, the economy and the market itself.
  
  

Go For Long-Term Growth And Returns

• Historically, stocks have provided an average return of 10 percent compared to 6 percent for bonds and 2 percent for bank deposits. Returns come from cash and stock dividends and appreciation in values of the stocks. Returns increase substantially when you choose stocks well and if you are able to buy low and sell high. Good fundamental analysis helps you choose stable growth stocks with more potential, while technical analysis helps time the purchases. Both use historical data to assess the prices and values of stocks and to project future values.
  
  

Go For Liquidity: Easy Conversion To Cash

• You buy stocks from companies that issue them or through brokers. Stocks may or may not be listed in the stock exchanges. Stocks listed in exchanges are easy to dispose of, especially if these stocks are heavily traded. Good liquidity allows investors to convert investments to cash when the need arises, either for an emergency or to take advantage of other opportunities, or to shift to another stock, should the ones being held turn sour. This characteristic is not inherent in investments in real estate, which are less liquid and take longer to convert to cash.
  
  

Diversify For Relative Safety

• Investors have a wide variety of stocks from which to choose. Investing in larger more stable companies is the choice of those looking for relative safety. Even with such "blue chips," investors diversify investments with stocks of different companies in different industries. Some investors diversify their investments only among those that give regular dividends, either because they need the income from dividends or because dividends signify strength and stability. Others put portions of their investments into "tech" or "small cap" stocks with high growth potential, but equally high risks.
  
  

Be Careful Trading For Quick Profits

• Many try to buy and sell stocks for quick profits. Some succeed in a few trades but many ultimately fail. Those who have succeeded more often than not are the very experienced, the daring, the moneyed and the very lucky--often all rolled into one. Their numbers are small compared to the many who have succeeded in investing in the long-term rather than trading for the short-term.