One choice is to sell ownership in your business, the individual, who provides that funding becomes an owner. That arrangement is the same thing as issuing common stock to an investor when General Electric GE issues stock. They are selling those shares to investors and using the money to grow their business. The stock purchaser has ownership in GE. The other way to raise money is to take out a loan one way a corporation borrows money is to issue corporate bonds like common stock bonds. Are issued to investors in this case the investor is a creditor like a bank.
If you buy a bond, you earn interest each year on your original investment. The corporation is also obligated to repay your original investment. As of a certain date that original investment is called https://casinoslots-sa.co.za/online-blackjack. The principal amount, so what is the number one risk of investing in stocks and bonds? The biggest risk in investing is the price fluctuation in your stock or bond investment. You can relate that spring analogy to price changes and investments. Some investments are like that tight spring. They don't move up or down a lot in price. Normally, that's because the company's sales and earnings are steady over time. Investing in utility stocks is a good example. Everyone uses electricity, your electric utility company's sales and earnings are predictable to a large extent. As a result, the stock price of utility company is a lot less volatile compared with other stocks. The utility company's stock price is a lot like that tight spring. You can also have a spring. That'S stretched widely use that visual to think about a stock price that varies widely. A startup company is a good example. Maybe a tech company startup this company's sales and earnings are unpredictable. They may make a lot of money one quarter and then they lose their shirt. The next quarter, the stock price, goes way up and way down. Okay, consider the concept of risk and reward if you've ever been to a casino you've, been exposed to risk and reward some betting choices have longer odds, but a bigger payoff. If you look at a craps table, there are bets that pay eight to one or ten to one for every dollar. You bet you can win eight dollars or ten dollars. However, the odds of winning that bet are smaller than others. It'S harder, for example, to roll dice and get a pair of sixes than to roll the dice and get two numbers that add up to four. The point is the craps table rewards you for taking more risk now think about that startup company. Your business has a lot of uncertainty, you're, not sure if the firm will be profitable if they are profitable. However, you'll get a bigger payoff in the form of a higher stock price and finally consider how much risk you're willing to live with here's a question if the value of your investments went up or down 20 percent in one year, is that something you could live With how about a 10 percent change take a minute and mole that over the term equity means ownership, a shareholder of IBM, common stock owns a small portion of IBM the company. Now you have some rights as a shareholder. The most important right is the ability to vote on major corporate decisions such as a company merger. These votes typically occur at a company's annual meeting. If you can't attend you'll be sent documents that allow you to vote. Your shares, equity owners can profit in two ways. One way is to sell your shares at a gain. The price of a company's stock would need to go up for you to sell it again. So how and why does the price of a stock increase a company's ability to generate sales and earnings causes the stock price to increase this concept can be compared to a play-doh toy play-doh makes toys that allow you to put play-doh in one end, you turn a Crank and play-doh comes out the other end in a variety of shapes. The play-doh you stick in one end is your investment in the company when the company uses your investment to make and sell a product or service. That'S like turning the crank on the play-doh machine. What comes out the other end is earnings or profit stock price increases and decreases are connected to a company's ability to generate growing sales and earnings. Investors judge a company's value on those measurements. In theory, a company that grows sales and earnings every year can have a stock price that increases steadily over time. Obviously, a company that doesn't consistently produce sales and earnings may see investors sell the stock. In fact, a stock price can go straight down to zero. The vast majority of stocks are somewhere in the middle. At times the companies are profitable, sometimes real, profitable, and sometimes they lose money. As a result, their stock prices vary up and down another way to earn a return is through a dividend. A dividend is a share of company earnings paid to shareholders.
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