<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Common stocks (or equity) represent ownership claims in publicly traded corporations.  The ownership stake if a single share is incredibly small, especially for large companies such as Proctor & Gamble or General Electric, but common stock investors can claim ownership and call themselves shareholders.  With ownership includes the ability to vote on company matters, such as approving members of the board of directors, choosing the annual auditor, or other items that come up in annual meetings.

Shareholders are also entitled to receive dividend payments, which are at the discretion of the board of directors.  Unlike the income investors receive in bonds, which are obligations, dividend payments can be stopped without any liability on the part of the company.  Of course, the share price can fall, but shareholders have no recourse.  (To learn more about stocks, see our Stock Basics Tutorial.)


Objectives and Risks

Equities are among the most liquid financial assets.  They can be bought and sold within three days (the trading day, plus an additional two days to settle).  They also have among the highest long-term returns.  On average, stocks have returned 10% annually over the past century.  Stocks also offer reasonable inflation protection –companies can pass along price increases to customers to offset higher wage and related inflationary pressures.


Of course, risk comes with these high solid relative returns above “safer” asset classes.  Stocks can experience daily, monthly, and even annual volatility (as measured by ups and downs compared to a benchmark equity return, such as the S&P 500).  For this reason a long-term investment horizon is needed, and generally runs a full market cycle of three to five years.  This helps ride out economic ups and downs (the business cycle) and fluctuations in investor sentiment in regard to stocks.


How to Buy or Sell It


Stocks are extremely liquid and easy to buy and sell.  Online brokers charge as low as $4.95 per trade to buy and sell stocks.  Capital gains rates are quite reasonable for stocks held more than a year.  Short-term capital gains are taxed at personal income tax rates in the United States.  Of course, taxes are deferred in qualified accounts, such as individual retirement accounts (IRAs) or company 401(k)/related retirement plans.




Common stock is very convenient to buy and sell.

Investors are owners in the underlying corporation.

Common equities are also very liquid.

There are literally thousands of stocks to trade in the United States, and even more in foreign markets.




Stocks can exhibit significant short-term trading volatility.

Short-term capital gains rates can be high

Stocks are subject to supply and demand and emotions that can put them heavily out of favor over short periods of time.


Key Considerations


Liquidity:  High

Historical Returns:  High

Inflation Protection:  Medium

25 Investments: Convertible Bonds
Related Articles
  1. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  2. Financial Advisor

    Small-Cap Investing and Illiquidity

    Do your homework, have a long-term view, exercise patience, you'll find that investing in small market capitalization stocks is no riskier than investing in large stocks.
  3. Managing Wealth

    Asset Allocation: The First Step Toward Profit

    Understanding the different asset classes is an essential part of portfolio diversification.
  4. Managing Wealth

    How Will Your Investment Make Money?

    Discover the basic types of investment income and which asset classes pay them.
  5. IPF - Broker

    Can You Earn Money in Stocks?

    Stock ownership can build a lifetime of prosperity, but prospective investors need to avoid a host of common pitfalls.
  6. Investing

    Defining the 3 types of investments

    Investments are expected to produce income or profit. They can be broken down into three basic groups: ownership, lending and cash equivalents.
  7. Taxes

    What You Need to Know About Capital Gains and Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
Trading Center