Common Stock: Why do People Invest in Common Stocks

Owning a common stock is to hold a piece of a big business. For young investors, it is a way to be a part of a larger picture.


However, just like any investment, there are ups and downs to common stock. How good or bad the situation is for you, depends on where you are standing in the field that you are in. Consider these advantages and disadvantages before making your investment decisions.


Ownership Equity

Equity ownership offers the highest return in the long run. Compared to bonds, or certificates of deposits (CFDs), common stocks have provided over 6 percent real rate of return, giving one the best ways to be one step ahead of inflation.

Limited Liability

This means your liability is only limited to the amount of your investment. If you invest $1,000 in a company, then that is also the most you are likely to lose. This is a good thing in the event that your investment takes a turn for the worst and the business gets saddled with debt.    


Common stocks are liquid. It can be sold anytime, or you can purchase more if you want to raise your stocks. Common stocks can also be bought at a reasonable cost.   


Capital Appreciation/Growth

People invest in common stock for one reason, they want to increase the value of their money. Investors in a common stock aim on acquiring the stock at a lower cost to eventually sell it at a higher price.

Dividend Payments

Companies distribute a part of their income to their investors in dividends when their earnings exceed what they need to cover maintenance and growth. This distribution of earnings provides profits for investors. Investors usually get dividends periodically.

High Potential Income

Common stocks offer a better chance to generate bigger return on investment. Given that they are guaranteed, you can identify the minimum and maximum amount you can accept to gain from them.

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