If you’re dreaming of owning a company, you can either start one from the ground up or you can buy your way into a company by purchasing a couple of their shares or stocks. The latter has gained exponentially tremendous popularity in the world of finance. While buying a few shares or stocks of a company entitles you to own only a small piece of it, except in the case of corporate raiders who buy majority shares and sell off the pieces, stocks still offer some of the surest ways to build wealth. This applies not only to the corporate entities that issue them, but most importantly to the investors who stake a portion of their hard-earned money in hopes of accumulating substantial amounts of wealth.
Some Stock Knowledge on Stocks

But what exactly are stocks? Why is it important to have them become part of your options when looking to improve your personal finances?
Essentially, companies sell stocks (or shares) so they can have the much-needed capital to fund whatever business goals they want to achieve. Whether a company is looking to expand their operations overseas or to grab a larger customer base by acquiring a rival company, selling some stocks could provide them the required capital to fund these objectives.

Preferred or Common?

There are two major types of stocks a company may offer. The most common type of stocks is, well, the common stock. This form of stock is usually the most volatile. While common stock doesn’t guarantee any rate of return, it has the potential to yield the highest long-term gains. To illustrate, if you bought 200  common shares of Company XYZ at $1 per share and the share’s dollar value increased to $10 per share over the next two years due to various factors, your initial investment of $200 would have then become a whopping $2,000! Another important point to take note of on common stocks is that one share entitles the shareholder to one vote to elect the company’s board members.

The other type of stocks, which some people may not be as familiar with, is the preferred stock. This type of stock doesn’t share any of the exciting aspects the common stock has, as a preferred stock usually has a fixed rate of dividends and has none of the voting rights guaranteed to a common stock. However, in case a company folds, as it liquidates, it pays off its preferred stock holders ahead of the common stock holders. In other words, common share holders get paid last when a company folds. In extreme cases, if there is not enough money to go around during liquidation, common share holders may never receive even a single cent.

What Should You Consider when Considering Stocks?

If you’re looking for a long-term accumulation of wealth, perhaps investing in stocks is the best option for you. Stocks are known to be the most volatile form of investment security, moving up and down wildly and susceptible to market speculations. However, while stocks do not have guaranteed dividends, they offer some of the highest long-term returns. That is why Warren Buffett would urge investors to hold on to their stock investments for years before cashing them in to gain the greatest ROI. Peter Lynch, the legendary former fund manager who made Magellan Fund return a whopping 29% on average annually during his tenure, would even advice stock investors to ignore the market fluctuations and wait for the right time to cash in their investments.

Whatever your goals are when it comes to wealth accumulation, it’s best to seek the advice of qualified investment advisors. There are tons of options for you out there, but by far, stocks have been the best in the pack in helping a lot of individuals accumulate wealth over a long period of time. The key to success in stock trading is to first learn the ropes, and then to be patient enough to wait for the best time to reap the rewards.