Advantages And Disadvantages Of Investing

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Advantages and disadvantages of investing in stock and investing in bonds? To determine whether one should invest in stocks or bonds, the first thing that should be achieved is a basic understanding of each one. Once a general knowledge is obtained, then comparisons can begin. Stocks Stocks are shares of a company that are initially offered as an Initial Public Offering (IPO). Once the owners of the IPOs wish to sell their shares they head to the secondary market. This is where the majority of investors obtain their stocks. As Sheyna Steiner mentions on the Bankrate.com website, it is highly unlikely that a casual or even average investor will ever be able to purchase through an initial public offering. The brokers that are tasked…show more content…
An increase in equity increases the value of the stock. If the company purchases more assets then the equity also increases and again so does the value of the stock. Only if the funds are distributed through dividends would the stock not increase in value. Along with cash dividends a company may decide to offer stock dividends as well. By offering stock dividends a shareholder’s quantity of shares will increase, but the sum value of the shares will not. Each share’s value will be slightly diluted due to spreading the investment out among more shares. Sometimes a company may decide to either split a stock which can be done in any number of ways. If the company decides to do an even ½ split then the shares would double but the value of each would be halved. Dividend reinvestment plans (DRIPS) allow shareholders to bank their dividends until there is enough to purchase additional shares, which tends to reduce fees and increase the shareholder’s profits. To help determine if a stock is worth buying or keeping, you can use the price-to-earnings (P/E) ratio. Investopedia.com suggest to find the P/E by dividing the stock’s price by the earnings per share. In order to find the earnings per share you must find out how much the company’s net earnings are currently and divide that by how many stocks are outstanding. If the stock is trading below the amount it may be worth purchasing. If the stock price is
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