Stocks and Shares

Now that you have started investing, it’s important to understand what you are investing in. On Bumper, you can either invest directly in a company (like Apple or Nike) or in an ETF. We’ll discuss the first option in this Bumper Bite.

When you invest directly into a company, you are trading money in exchange for stock. This stock represents partial ownership of the company. If the company becomes more valuable, your stock becomes more valuable. If the company becomes less valuable, your stock becomes less valuable.

How do you determine what percentage of the company you own? Investors do this by keeping track of shares. Essentially, shares are slices of ownership of the company. For example, if company A to Z is divided into 10 billion shares. If you owned one share, you would own 1/10 billion of the company. That’s not a lot, but what if A to Z was worth over $2 trillion?

Doing some simple math, you can find that each share of A to Z is worth about $200.

Stocks are given various classifications based on their risk and growth potential. The most common classifications are Blue Chip, Value, Growth, and Income stocks. 

• Blue-chip stocks are shares in large, well-known companies with a solid history of growth. They generally pay dividends.
• Value stocks have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound.
• Growth stocks have earnings growing at a faster rate than the market average. They rarely pay dividends and investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock.
• Income stocks pay dividends consistently. Investors buy them for the income they generate. An established utility company is likely to be an income stock.

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As we mentioned earlier, you can also invest in ETFs on Bumper. We’ll talk about ETFs next.

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Source: Investopedia | Stocks