Why do investors buy equities? What are these products? What should I take into account? Where do I start? Our investing FAQ can help!
We at Investing Guides have chosen to list all the most frequently asked questions around investing. Heck, we asked most of these ourselves when we began. Join us in getting smarter!
List of our investing FAQ
Dividend income and capital growth are the two major reasons. But to get the full picture you also need to factor in diversification, inflation, and also your emotions.
A company keeps most of its shareholders happy by growing sales and revenue. Value investors also receive dividends.
Investors who prefer cash now are called income investors or value investors. They want a steady flow of dividends, cash in their pocket is more important than a promise of cash in the future. The second group is growth investors.
No dividend payment is guaranteed and the company won't pay anything if profits suddenly fall.
Warren Buffet, whose personal wealth was $67 billion at the end of 2015, has done pretty well out of value investing. He buys shares that have the potential to pay dividends over the very long term.
It's a company with a product that has a relatively low production cost, but that charges a premium for its brand. Therefore those profits get paid out in dividends to shareholders.
The early years of fast-growth companies are often difficult. So much money is spent on developing technology and opening new markets that they can make losses and loss-making companies never pay dividends. The company might even file for bankruptcy.
Once a company's products become popular, sales will increase and profits will grow. The directors of a growth company use this money to build new factories, conquer overseas markets and buy up competitors. All of which is likely to significantly increase its stock value.
Google is the most visited website in the world. It's made more than 180 acquisitions, buying up huge brands like YouTube, and has invested continually in R&D. The profit Google makes is reinvested into the company. It's considered a growth company.
Diversification is an essential part of stock investing. Spreading your investment across different companies, sectors and countries automatically improve the relationship between risk and return. Never invest all your money, or even a large sum, in one particular stock.
Inflation reduces your effective investment return. Investing from a historical standpoint has more often than not offset inflation.
Investors seek higher returns during times of high inflation. Shares are popular even if they are more volatile. Their higher nominal returns mean that inflation eats up less of the money you make
You should ask yourself the following questions: What are your reasons for investing? Before you start selecting companies, be clear about why you're investing. What are you investing for?