Investing stocks can help build wealth over the long-term but its not without risks. Learn the basics of stock investing, stock analysis, and strategies to build your stock portfolio.

Frequently Asked Questions

  • How do I invest in stocks?

    To directly invest in stocks, you’ll need a brokerage account. Determine how much risk you’re willing to take and your investing strategy. Consider the time frame, whether you’re looking for price appreciation or dividends and how these stocks fit in your portfolio. You can also invest in stocks through mutual funds, ETFs and 401(k) plans. Investors with higher risk appetites can consider derivatives or day trading strategies.

  • What are stocks?

    Stocks represent ownership in a publicly-traded company and are traded on stock exchanges. When you buy shares of a stock, you become a shareholder and receive proportional ownership in the company and its profits. Shareholders benefit from an increase in stock price, dividends or other perks. You may also get voting rights, depending on the type of shares you buy.

  • Why are stocks down today?

    Stock prices are determined by demand and supply on the exchanges. Market sentiment based on economic data, happenings in a certain industry, or company-specific news can impact stock prices. Stock markets or stock indexes consist of publicly traded companies. Price swings in large companies or many companies on an index can move the entire market down.

  • What is a short squeeze in stocks?

    A short squeeze can occur when short-seller bets go wrong. Shorting means selling a stock that you don’t own yet at the current price, buying it once the price falls to complete the sale, and profiting from the difference. If the stock price moves higher instead, your short loses money. You now have to buy the stock at the higher price to cover the sale. When many investors do that, it creates more demand for the stock taking its price higher. 

  • Where do I buy stocks?

    Stocks of companies trade on stock exchanges. To buy a stock, you need to open a brokerage account. You can place your buy or sell orders for stocks through this account. You can also buy stocks without a broker through direct stock plans or DRIP investing. You could also own stocks by investing in mutual funds, ETFs or through your 401(k) plan, but with these options you may not be able to choose specific stocks to buy.

  • Which stocks should I buy?

    Investing in stocks in general carries some risks but some stocks can be more volatile than others. The first step is to evaluate your risk tolerance and how much money you can afford to lose. Market cap is often treated as a benchmark for stability but don’t rely on that alone. Research the company’s financials and business to assess how the stock fits into your investing strategy.

  • What are penny stocks?

    Penny stocks are often issued by small companies called microcaps. Microcaps are companies with market capitalization less than $250 or $300 million. Penny stocks typically have stock prices of less than $5. Investing in penny stocks can be speculative, highly volatile and risky. Such stocks, typically, have less stringent disclosure requirements and low trading volume. 

  • When should I sell stocks?

    Typically, individual investors are recommended to buy and hold stocks for a long time. Trying to time the market or panic-selling during a falling market are often mistakes that investors make. But if the stock no longer aligns with your investment strategy, if the company isn’t making sense in your portfolio or if you need to sell your holding for any other reason, you should do so with a plan.

Key Terms

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how stocks work: Companies issue stocks to raise capital in an Initial Public Offering (IPO). Stockholders sell their shares on the stock market. Members of the public and investors buy and sell these shares. Stocks are bought and sold based on expectations of corporate earnings. Shareholders can make a return on their investment by selling shares at a higher price than purchased, receiving dividends, and through derivatives.
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Buying Stocks Without a Broker: Diect stock purchase plans (DSPP): participants pay via a payment plan ($50+ every month) or a one-time-purchase ($250-$500), The DSPP administrators batch the participants' cash and use it to buy company shares. Dividend Reinvestment Plans (DRIP): DRIP allows you take cash dividends paid out by the company you own and use them to buy more shares; expect nominal fees or no charge at all"
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Page Sources

  1. "Microcap Stock."

  2. Missouri Secretary of State. "Penny Stocks."

  3. "Bear Market."

  4. Charles Schwab. "Market Correction: What Does It Mean?"