Financialtreat – will explain about First Get to Know the Definition of Stocks, Types, Advantages and Disadvantages that you will get in the following article. let’s look at this article carefully!
Stocks are one of the most popular investment instruments, both for novice and professional investors. Therefore there are some good stocks to invest in so first recognize the types of advantages and disadvantages before investing. The popularity of stocks as one of the investment instruments is not only carried out by millennials and workers, but also Indonesian mothers and women.
Although mothers are preoccupied with a series of busyness, perseverance in investing in stocks can be one way to achieve financial goals. Moreover, if done correctly, this type of investment can also provide sufficient additional profits. Well, for that let’s talk about this article will talk about good stocks to invest in. Let’s look at the notion of the privileges and shortcomings of stock investing.
First Get to Know the Definition of Stocks, Types, Advantages and Disadvantages
Definition of Stocks
According to the journal Social Security Bulletin, stocks are securities that represent ownership of a small part of a company. This investment instrument entitles the owner of the investment to a proportion of the assets and profits of the company similar to the amount of investment they have. A similar statement was also made by the Indonesia Impact Exchange (Bei).
If you have shares in company X, then you are part of the owner of that company. This ownership is determined by the amount of investment a person has on the amount of investment in circulation. For example, if a company has 1,000 shares outstanding and one person has 100 shares, then that person is entitled to own and get 10Percent of the company’s assets and income.
However, according to the University of Pennsylvania journal Carey Law School, the holder is not entitled to the company’s physical building. In this case you are only entitled to ownership issued by the corporation. These corporations are a special type of organization because the law treats them as legal entities.
Types and Examples of Stocks
After realizing the meaning of stocks and how they work, now is the time for you to know the stock model so you don’t make the wrong choice when investing. Realizing this type and example of investment can also minimize yourself to avoid the risk of loss. Here are the types and examples, according to the U.S. Securities and Exchange Commission.
1. Common Stocks
This type of investment is the most common and popular type among investors. Investments of this type usually represent ownership in the company and claims (Dividends) on part of the profits. Even so, the owners or holders of ordinary stock investments have limitations.
However, the profit obtained is that if there is the worst risk, such as the company going bankrupt, the maximum loss will be borne by the holder from a certain amount of investment in the shares. Not only that, this model investment is very suitable for long-term investment.
Because it passes through capital developments and generates higher profits or returns than other stock investment models. However, keep in mind that this high return is accompanied by great risks and costs.
2. Preferred Stocks
This one stock is a combination of bonds and ordinary shares. This is because many investors prefer fixed incomes such as bonds. But, in general, this type of investment has the same characteristics as ordinary shares.
You represent several levels of ownership in the company but usually don’t have similar tone rights. But on preferred shares, investors are usually guaranteed a fixed dividend forever. This is different from the ordinary type which has variable dividends that were not previously guaranteed.
Another advantage is that in the case of liquidation of the investment holders this model is repaid before the holder of ordinary shares (But still after the holder of the debt). This type of stock investment can also make claims on previous profits or assets. That is, the company has the option to buy it from shareholders at any time for any reason (Usually at a premium price).
3. Class Disparities in Stocks
Ordinary shares and preferred shares are 2 types and main examples of this model investment. However, companies can also adjust the class and classification of their investments according to the wishes of investors. Usually this happens when the company cravings the melody rights remain on the exclusive group.
Therefore, class disparities and classifications of stock investments are given only to exclusive circles or urgent circumstances only. For example, one class of stock will be held by a selected group that is given 10 melodies per share. The second class will be issued to the majority of investors who are given one melody per share.
Advantages of Stock Investment
1. Taking Advantage of Economic Development
As economic developments skyrocket, the income of companies is increasing This is because economic developments create jobs, income, and sales. The greater the income, the higher the consumer demand which will provide high profits for the company. This is included in the business cycle, namely expansion, peaks, contractions, and troughs.
2. The Best Way to Avoid Inflation
Launching from the Federal Reserve Bank of St. Louis, shares have a return of 10 percent. This advantage outweighs the average inflation rate of th.
3. Easy to Buy
The stock market makes it easy to buy shares of companies. You can buy it through a broker, financial planner, or online. Especially now that there are already many e-commerce and investment applications that facilitate users to invest this type online even without commission.
4. Easy to Sell
The stock market is too likely to sell anytime and anywhere. Economists use the term “Liquid” which means you can turn this type of investment into cash quickly and with low transaction fees. This is especially important when you need funds in the form of cash for urgent needs.
5. Make Money in Two Ways
The first way is to invest in stocks when the price is low and then sell them at a high price. Generally, they invest in companies that have fast development and value the value of the company. Then, the second way is to take advantage of the company’s revenue income and stock price that grows over time.
Disadvantages of Stock Investment
After knowing the advantages of this type of investment, it is time to consider the disadvantages of stocks. Indeed, stocks bring the highest returns compared to other investment instruments. However, this does not mean that stocks do not have shortcomings. Obviously the shortcomings of investing in this model can minimize losses and match with the risk portfolio you have. Here’s the explanation.
You can lose all investment funds if the company’s performance decreases or deteriorates. If this happens, usually the investor will sell the price equal to lower when the purchase price. Thus, you will lose your initial investment funds. If this happens, you should buy bonds.
2. It Takes Time to Learn Stocks
In the irs journal, if you buy your own shares without using an investment manager or investment robot, then you have to research each company. This is important to do to determine how profitable the company is before starting to invest. Not only that, you also have to learn how to read financial statements and year reports and also follow the company’s growth in the info.
Read more Wealth management:
- How to Choose a Financial Manager for Your Company
- First Get to Know the Definition of Stocks, Types, Advantages and Disadvantages
3. Unstable Emotions
The stock price rises and falls second by second making a person’s emotions unstable. This makes the similarity of buying it at a high price, or buying because it is greedy to the point of selling stocks very quickly for fear when the stock price plummets. The best thing to deal with this is not to see the price fluctuations of this type of investment continuously, but make sure to always check regularly.
4. Professional Competition
Institutional investors and professional traders have more time and knowledge to reap untold profits from investing. They also have advanced trading tools, financial types, and a computer platform that can be used to track profits.
So that competition arises between novice investors and professional investors. No need to panic, you can find out how to make a profit as an individual investor. That’s the definition, the advantages, the disadvantages, to the types and examples of stocks. After the explanation above, are you interested in investing in this type of stock?
Thus the explanation above is limited to good stocks to invest in hopefully with the explanation above it can help you in investing in good stocks and thank you.