More tips and tricks to help with investing
Editor’s note: This is the second of a three-part series on the basics of investing money. The final part will run Jan. 29.
Risk and reward: common stocks
Common stocks are equity securities. That is, they represent ownership in the issuing corporation. As the assets and liabilities of the corporation fluctuate, the stockholders’ equity fluctuates, and so does the book value (balance-sheet value or assets minus liabilities) of your shares. Stock prices can also fluctuate with investors’ changing perceptions of the prospects for the company.
From the company’s earnings (profits), the board of directors determines what portion will be distributed to stockholders as dividends and what portion will be retained to enhance book value or reinvest in the business. Thus stocks can offer two components of return: dividends and the change in the stock’s price.