Stock investments: definition, types, methods, profits and risk | Stocks are an investment that you can choose now. Before that, however, you need to know the meanings, types, benefits, and risks of stocks.
Who doesn’t know the action? An investment that has been growing in Indonesia in recent years. The investment is used by the community to develop assets. The development of assets can contribute to the better prospering of life later.
Among the types of investments that you are familiar with, investing in stocks is still the most popular. However, you cannot be careless about investing in stocks, especially if you want to develop your assets through large amounts of stocks.
There are a few things you should know about investing in stocks first, such as understanding, types, examples, and the advantages or disadvantages of investing in shares.
What is an investment in stocks?
The definition of investment is a way to set aside certain assets or money in the financial market for a certain period of time and get results at a later date. Of course, a healthy stock investment will make your money pay off.
So what is the stock? A stock market investment is an instrument of the financial market in the form of a sign of the capital participation of a person or business entity in a company or limited liability company.
Thanks to this investment in shares, you also have the right to the assets and income of the company, and you have the right to participate in the General Meeting of Shareholders.
Earmarking of inventories is also usually used to find income or long-term investment. Then this stock investment is also the company that will manage the assets or equity you deposit, and usually stock investments are used for specific purposes in the future.
What Types of Stock Investments Should You Know?
After understanding what an investment in stocks is, the next step is to find out about the types of stock investments that are circulating in the money market. Various sources show that there are several types of stocks that can be distinguished by their ownership, trading performance, and how they are transferred.
1. Ordinary actions
Common stocks, or common stocks, are a type of ownership-based stock. Common stocks can claim ownership by adjusting for losses and profits held by the company. Warrants are examples of ordinary shares or ordinary shares.
In the case of ordinary shares, shareholders have limited liability. For example, if a stock provider goes bankrupt, shareholders will only get the last priority in distributing the company’s profits.
2. Preferred Stock
Another equity investment is the Stock or Preference Equity Investment Preferred, which is a combination of bonds and common stock investments. The interest generated by the preferred stock investment will be fixed. Usually, on the stock market, you can also find your preferred stocks with the 4 letter code or an additional “P” behind them.
3. Actions at the exhibition
Stock investments on this show are also usually referred to as bearer stocks. These stock investments usually do not have a written name of ownership either. The reason is that the transfer is easy without going through a legal entity.
4. Actions for
As the name suggests, an investment in shares has a written confirmation of its ownership in its name. To move or transfer, it obviously has to go through the legal entity.
5. Earnings sources
Investments in profitable stocks are stocks that usually bring higher returns or dividends than in the previous period. This means that the reserve of income always increases in each period.
6. Increase in inventories
Growth stocks are investments in stocks that exhibit high stock growth. Typically, however, not all high-ranking companies have growth stocks.
Growth stocks are divided into two, namely, well-known and unknown. The stocks coming from the company are quite high. Meanwhile, less well-known companies tend to come from growth companies that are less popular.
7. Blue Chip Stocks
This equity investment is typically issued by a high-profile company or one that has a stable income and is also consistent in paying out the profit sharing. This type of investment in stocks is also often the target of investors.
8. Stock cycle counter
One stock investment that will not impact the ups and downs of the economy is countercyclical stocks. So that the situation is always stable but the countercyclical share profit is adjusted to the company that issued the shares.
9. Speculative actions
The last type of investment in stocks is speculative stocks, which provide inconsistent returns but have high returns.
The advantages of investing in stocks
It is mentioned that this equity investment will have a big impact on successful finances later on. It has been found that there are three share benefits that can be obtained from investors or share buyers.
1. Capital profit
The first advantage of investing in stocks is capital gain, which is the difference between the selling price and the buying price. Capital gains also typically come from secondary stock trading activities.
A stock market investment also has advantages in the form of dividends, i.e. profit distribution by the company, which, of course, are also generated by the company itself. Payment of this dividend must be approved by the shareholders.
Dividends paid by companies are usually paid in the form of a cash or stock dividend. Of course, if it’s in cash, it’s in the form of rupees. Meanwhile, the stock dividend will take the form of stocks that will later be added to stocks held by investors.
3. It can be done anywhere
Investing in stocks can be done anywhere, anytime. Stock purchases are also most commonly made online, from sale to purchase. So it won’t interfere with your actions.
In addition to its benefits, investing in stocks also comes with risks that should be avoided:
1. Capital loss
Unlike capital gains, a capital loss is when investors sell their stocks below their previous purchase price.
2. Liquidity risk
Shareholders may obtain the last priority after the court declares the bankruptcy of the company whose shares are held. If the company still has remaining assets, they can also be divided in full among all shareholders. However, this claim must be made only after the company has fulfilled its obligations.
So you have to continue to follow the development of the company from the shares you own. Also note that stocks traded on the secondary market will always go up and down.
What is the difference between investing in stocks and trading stocks?
Perhaps you often hear about investing in stocks and trading in stocks, namely that firstly, the stock trading period will be shorter than the stock investment period. Stock trading also has the greater purpose of making a profit on the number of stocks purchased. Meanwhile, equity investments emphasize long-term returns.
Finally, investors who trade stocks will not get the benefits of stock investments such as dividends, premiums, and stock splits.
Also, remember that in order to invest in stocks, you will need to deposit non-emergency equity assets or give away all your capital as this stock investment will have its ups and downs.