Invest in Shares

Shares in a company with a particularly large market capitalization are called “large caps.” They are generally safer investments, but often have lower returns. Small caps, in contrast, often combine higher returns with greater volatility.

Shareholders’ returns consist of not only price gains, but dividends as well. Some corporations pay large, regular dividends, while others plow their profits back into the business for purposes such as research and development.

There are different types of shares. For example, you can categorize shares by how they are transferred (bearer vs. registered shares) or by their voting rights (common vs. preferred shares).

Protect yourself with a broadly diversified portfolio that meets your needs. You can do this by placing stocks from different sectors in your portfolio. This approach spreads out your assets and significantly reduces your risk.

Many investors frantically buy or sell in response to big price swings. But that can cost you a lot of money. It makes more sense to invest long term.

Overly ambitious return goals can produce portfolios filled with risky investments or concentrated on a few shares. Leave day trading to the professionals and consider other investment vehicles such as well-diversified mutual funds.

Investors will often change their portfolio composition and risk exposure over time because some shares have outperformed others. Keep to your risk profile and regularly check your portfolio against your investment strategy.

Steer clear of alleged insider tips such as the “perfect beginner’s stock.” Don’t overreact to rapid rises or falls in share prices. Herd behavior can produce speculative bubbles on the stock market.

If you buy stock in a company, your initial investment may shrink as its valuation fluctuates. You could even lose your entire investment in the event of bankruptcy.

Stock prices are determined by supply and demand in the stock market or the over-the-counter market. Prices may fall after a purchase. That is a risk that you bear as an investor.

If a company declares bankruptcy, it will pay off creditors first, and shareholders second. That means you could lose your entire investment in the event of bankruptcy.

Shares can trade daily, but only if there are enough buyers and sellers. As an investor, you bear the risk of not being able to buy or sell a share immediately or at less than the market rate.

Exchange rates fluctuate. If a share trades in a currency other than your home currency, you as the investor bear the risk of losses due to changes in exchange rates.

If you buy a large stake in a particular company, you could face disproportionately high losses if the stock does poorly. To avoid this, spread out your risk with a well-diversified portfolio.