What are stocks?
Stock represents partial ownership of a company. By purchasing stock, you stake a claim in the future of that company and the potential investment return that it may bring.
A stock’s price is determined on the open market by how much investors are willing to pay for it, so that price may rise or fall.
You may also receive dividends, which are paid to shareholders from the company's earnings. The amount of the dividend is decided by the board of directors and is based on what portion of earnings needs to be reinvested in the growth of the company and what portion the company decides can be distributed to shareholders. Whether or not a company has a history of paying dividends regularly is just one benefit to consider when considering a stock purchase, keeping in mind that past performance is no guarantee of any future return.
As a shareholder of common stock, you — along with potentially millions of other shareholders — have a vote on issues such as election of a board of directors and other important issues affecting the direction of the company.
With potential reward, however, you also have associated risk. The stock’s value stock will fluctuate with its performance and the perceived value investors place on it. In the best case, the company performs well and is attractive to other investors and you are rewarded as the value increases. In the worst case, when a company is forced to liquidate, it is first obligated to pay its creditors, bondholders, and those who hold preferred stock (a limited issue stock that does not hold voting rights) before those who own common stock.
So, stocks carry higher investment risks and potential rewards than bonds or money market investments. Historically, they have realized higher rates of return in the aggregate and over the long term. In deciding to invest in stocks, investors must weigh the potential reward with the potential risk of loss.
Saving and investing basics
Please consider the charges, risks, expenses and investment objectives carefully before purchasing a mutual fund or exchange-traded fund. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.