Investing in stocks is an important part of investing for retirement. Stocks are critical because they offer a significant opportunity for growth. However, stocks must be used with caution, as investing in stocks also brings about the risk of losing all or part of your investment.
What is a Stock?
A share of stock represents part-ownership in a company. You can choose to buy as many shares as you would like with the money you have available. The price of the share of stock you own can (and usually does) change after you buy it as the prospects for the company changes. Other, non-company specific factors, might also affect the price of the stocks you own.
Stock Investing in Your Portfolio
Because of their growth opportunities, stocks tend to be an important part of a long-term investor's portfolio. As you get closer to retirement, it typically makes more sense to decrease the percentage of money you have invested in stocks to decrease the risk of losing a substantial sum of money when you can least afford it.
Types of Stocks
There are several different kinds of stocks, including:
- Small-cap stocks: Riskier stocks, typically with market capitalizations of under $300 million.
- Large-cap stocks: Stocks of enormous companies, including those with values in excess of $5 or $10 billion.
- Foreign stocks: Stocks traded primarily on a non-US exchange.
How to Invest in Stocks
You can invest in stocks by purchasing them directly via a broker. Alternatively, you can choose to buy stock-based mutual funds or ETFs. If you choose mutual funds or ETFs, you relieve yourself of the responsibility of choosing exactly when to buy and sell stocks but pay a management fee in exchange for delegating that responsibility.