Buying Stocks – Why Should We Buy Them?
The primary reason we buy stocks is with the hope of realizing a profit from the money spent in buying a given stock. But to call stocks an investment can be a bit misleading. There are some stocks we might by as long term investments, these would typically be stocks that may hold their trading price fairly steady but pay good dividends on a regular basis. Other stocks may have share prices that fluctuate wildly and pay low dividends. These are not stock we want to invest in, but they may be stocks we want to buy. We’ll call the first set of stocks investment stocks and the second set of stocks trading stocks, we want to buy each set for very different reasons.
Why Buy Investment Stocks?
Investment stocks are stocks that one purchases with the intention of holding those shares for an extended period of time. These are stocks that you typically will not trade on a regular basis, but rather use as a (relatively) steady source of income. Good investment stocks can be the ultimate source of passive income—after you purchase the stocks you get a dividend payment every quarter for as long as you own the stock.
To quality as a good investment stock, the stock has to have a reputation of paying higher than average dividends consistently. The cost of an investment stock may be high, and since the stock price seldom fluctuates much the investor will not likely realize a profit from selling these shares. The money is made slowly via dividends, which can provide a nice source of income to the savvy investor.
Why Buy Trading Stocks?
Unlike investing stocks, trading stocks may not pay dividends consistently, because the company doesn’t have the cash to pay them, and their share prices may fluctuate radically. It’s not normally a good idea to hold these stocks for a long period of time, since the only real chance to make money on them is via the trading of the actual stocks, not through dividend payments. Money made in trading stocks is done quickly by buying the stock at a relatively low price and turning around to sell it at a relatively high price.