Growth stocks
have earnings growing at a faster rate than the market average. They rarely pay dividends and investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock.
Income stocks
pay dividends consistently. Investors buy them for the income they generate. An established utility company is likely to be an income stock.
Value stocks
have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound.
Blue-chip
stocks are shares in large, well-known companies with a solid history of growth. They generally pay dividends.

Another way to categorize stocks is by the size of the company, as shown in its market capitalization. There are large-cap, mid-cap, and small-cap stocks. Shares in very small companies are sometimes called “microcap” stocks. The very lowest priced stocks are known as “penny stocks.” These companies may have little or no earnings. Penny stocks do not pay dividends and are highly speculative.

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

Stocks are the foundation of nearly every portfolio. Historically, they have outperformed most other investments over the long run.

What is a stock exchange?

A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions at a central location such as the floor of the exchange. Many stock exchanges today use electronic trading, in place of the traditional floor trading.

To be able to trade a security on a certain stock exchange, the security must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to a physical place, as modern markets use electronic networks, which give them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges. Initial public offerings of stocks and bonds to investors are done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks.

There is usually no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange. Such trading may be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global securities market. Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares. The Philippine Stock Exchange (PSE) is the stock exchange of the Republic of the Philippines.

 

Why Invest in Stocks?

1. Stocks offer the highest potential returns in the long-run
2. Stocks give you the benefit of owning a company
3. Stocks protect investors against inflation
4. Stocks provide liquidity to investors
5. Stocks provide tax leverage to investors
Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time generally have been rewarded with strong, positive returns.

But stock prices move down as well as up. There’s no guarantee that the company whose stock you hold will grow and do well, so you can lose money you invest in stocks.

If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the proceeds. The company’s bondholders will be paid first, then holders of preferred stock. If you are a common stockholder, you get whatever is left, which may be nothing.

Even when companies aren’t in danger of failing, their stock price may fluctuate up or down. Large company stocks as a group, for example, have lost money on average about one out of every three years. If you have to sell shares on a day when the stock price is below the price you paid for the shares, you will lose money on the sale.

Market fluctuations can be unnerving to some investors. A stock’s price can be affected by factors inside the company, such as a faulty product, or by events the company has no control over, such as political or market events.

Stocks usually are one part of an investor’s holdings. If you are young and saving for a long-term goal such as retirement, you may want to hold more stocks than bonds. Investors nearing or in retirement may want to hold more bonds than stocks.

The risks of stock holdings can be offset in part by investing in a number of different stocks. Investing in other kinds of assets that are not stocks, such as bonds, is another way to offset some of the risks of owning stocks.
Being a shareholder entitles the investor to receive dividends and to participate in various corporate events declared by the company. In addition, the investor may receive company reports, may participate in stockholders’ meetings, and may cast their votes in selecting the Board of Directors and in addressing certain business decisions.

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Inflation is defined as the increase in general price levels of goods and services in an economy over a period of time, which reduces the purchasing power of an investor. Inflation does not greatly affect stocks in contrast with other financial instruments such as bonds and bank deposits, because companies have the ability to adjust prices with the rate of inflation.

Inflation is not your friend when you’re trying to save for a major outlay, like buying a house or financing a comfortable retirement. Fear of stock market risk may prompt you to stash your money under your mattress or in a savings account, but this approach to investing doesn’t consider inflation and over time, may carry more risk to your nest egg than stock market volatility.

Some level of inflation is a fact of life. Consider that the average inflation rate in the Philippines hovers at about 4% in the past 18 years. Then think about how this could eat into your purchasing power and objectives if most of your money is sitting in a savings account. It would have to earn at least 4% just to keep up with inflation. Although there’s no guarantee of how your investments will pan out, a mixed bag of well-considered stocks has the potential to beat inflation and help keep you on track for the long haul.
Stocks are considered liquid assets, because you can readily sell your shares in the stock market if you need money for emergency purposes, and you can obtain your funds with your stockbroker within a week. You may also withdraw credited dividends in your account to fund your needs.
Investors may maximize financial opportunities in investing on stocks as purchasing stocks and profits derived from stock investing is non-taxable, and the only tax incurred by the investor is the sales tax which is only fifty (50) basis points of the gross amount of the sale transaction.

How to Make Money in Stocks?

There are two ways of making money in stocks:

Capital Appreciation

This is the increase in the value of an investment over time. It is the difference of the price at which a stock is sold and the purchase price of the stock.

Dividends

Sometimes companies declare dividends, which is the payment made by a corporation to its shareholders out of the unrestricted retained earnings of the company. Dividends may be paid out in the form of cash, stock, or property assets like shares of a subsidiary of the company.

How to Invest in Stocks?

Here are some reminders regarding stock investing:

1. Create a Plan.
The key to financial security is to have a plan, and to take this plan into heart. You must first identify your current situation, like how much are your liabilities and how much have you saved. Afterwards, you define your goals and objectives. Do you want to secure the education of your children, or do you want to have a trip abroad with your loved ones? Once your goals are set, you may figure out what types of stocks to invest, when to enter and exit in the stock market, and how much you’ll need to invest.

Study your own profile as an investor to know how much you can invest. Much will depend on your financial status and what stage of your career you are in. You can afford to be more aggressive if you would not be risking funds for your basic needs, your children’s education, or emergencies.
2. Educate Yourself.
You may learn about the stock market or the economy in general through the Internet, by watching business news, and by reading books & publications. You may also participate in seminars offered by stockbrokers and by financial organizations like the PSE. You may also ask individuals or colleagues well-versed in the stock market industry. However, the time-tested way to learn about the stock market is to experience first-hand stock market trading. As the adage says, “experience is the best teacher”.
3. Know the Company Before You Invest.
Look for companies which are stable, profitable and successful in the long-run. Collect information regarding prospect firms, conduct research on these firms, and afterwards assess whether the firm qualifies in your criteria. In this manner, you will have a solid and intellectual basis behind your decision. A pitfall of most investors is that they base their decisions purely on emotion, on rumors, and on tips from other people.
4. Save and Invest While You’re Young.
UTILIZE TIME in your favor to take advantage of the income-generating potential of your investment, otherwise known as “compounding”. Let’s assume that you wish to invest PHP 10,000.00, and your investment grows by 10% annually. If you reach 60 years old, your investment will be worth:

It is also advisable that you allocate AT LEAST A PORTION OF YOUR MONTHLY INCOME OR SAVINGS for stock investing. Many experts recommend putting not more than 25% of your savings to be safe. If you are near retiring, then you must be very conservative and not put in more than 10% of your available resources. Do not risk what you cannot afford to lose.

Let’s assume that you wish to invest PHP 2,000.00, allowing your investment to grow 10% annually, and adding another PHP 2,000.00 every month until you retire. If you reach 60 years old, your investment will be worth:
5. Think Long-Term.
Stocks are volatile in nature especially in the short-term. Market prices tend to fluctuate, and may rise and fall depending on various market factors. Although experienced professionals may “time” the market, most individuals are unable to constantly monitor stock price movements. Therefore, long-term investing helps you in weathering these disturbances and gives you convenience by relying on your sound investments to grow over time.
6. Diversify your Investments.
“Do not put all your eggs in one basket.” Diversifying investments is a risk control measure wherein investments are segregated across different companies and sectors and not solely on a stock or a sector. This ensures that the risk is spread across your investments.

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