Source: Erik Schriemer, investment expert at MeDirect
When you own a share, you own a small part of the company and you have a claim on the profits (dividends) of this company. Investing in stocks can yield high returns, but carries higher risk compared to other investments such as ETFs, bonds or a savings account. Why is that? We will explain it to you below.
Why do companies issue shares in the first place?
Companies issue shares to raise capital, grow their business, pay off debt, or return value to shareholders. By the way, did you know that shares are a Dutch invention? The first share was issued by the VOC in the 17 th century. The VOC needed money to pay for their activities, in exchange for the money that people invested in the VOC, they shared in the profits. This is exactly how stocks still work.
Types of shares: Common & Preferent
There are two types of stocks: common and preferred stock. Common stock gives owners voting rights and the ability to share in a company’s profits through dividends. Preferred stock usually does not have voting rights, but has a higher claim on a company’s assets and income than common stock. The value of a stock is determined by supply and demand and can be influenced by the company’s financial performance, market conditions, and economic trends.
Investing in stocks – Potential for profit and loss
When you buy a stock, you can hold it for as long as you want and receive any dividends the company pays. You can also sell your shares at any time, hopefully at a profit. However, the value of a stock can also fall, leading to a loss for the investor.
The Tulip Mania – A story about speculation
Unfortunately, the Netherlands is also the inventor of another stock market concept: the bubble. The first bubble was the Tulip Mania of 1634 – 1637. This remains as a vivid example of the dangers of stock market speculation. During this period in the Golden Age, tulip bulb prices reached excessive levels and eventually crashed, leaving many investors with worthless bulbs. If you are going to invest in stocks, it is important to understand the market dynamics and be vigilant so as not to get caught up in a market hype. If you want to read more about emotion in investing, read this article about behavioral finance in investing.
Diversifying your portfolio – Reducing risk
When investing in stocks it is important to diversify your portfolio, never bet on a horse. It is quite difficult to put together a well-diversified portfolio. That’s why some people choose to invest in mutual funds or ETFs. With these products, the spread is automatic and the risk associated with investing in one share is smaller.
Investing in shares is very easy at MeDirect
- Wide universe of shares: MeDirect offers a wide choice of shares.
- User-friendly platform: Our user-friendly platform makes investing simple and fun. You get access to important information and useful tools. With our filtering options we make it very easy to find the right shares that suits your investment goal.
- Low costs: Buying and selling shares is very advantageous at MeDirect. Check the costs here.
- Free investment training: At MeDirect we want to make investing easier. That is why all our customers receive an online training program at Markets are Everywhere. Terms and conditions apply, click here for more information.
- Expert support: If you have a question, don’t hesitate to ask!
Disclaimer
The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
If you invest in any product, you may lose some or all the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from any investment may go down as well as up. Products may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance.
Any decision to invest should always be based upon the details contained in the Prospectus and/or Key Information Document (KID).
MeDirect Bank is a trading name of MeDirect Bank (Malta) plc, registered under company number C34125, MeDirect is licensed to conduct banking activities in accordance with the Maltese Banking Act (Cap. 371) and investment services under the Maltese Investment Services Act (Cap. 370).