Investing in Stocks

Last updated: April 8, 2016

The Basics of Stocks

The Value of Stocks

In general, stocks have outperformed all other investments by a big margin over long periods of time.

  • But the decade of 2000–09 was an exception. It was the first time since the Great Depression that stocks lost money over a ten-year period, following double-digit annual returns during the 1980s and 1990s.

  • Of course, not every investor lost money in the first decade of the new century.

    • Those who diversified into other investments, particularly bonds and foreign stocks, generally earned positive returns. And those who invested in stocks gradually over the ten-year period exhibited better results than the overall market’s performance suggested.

At any rate, since 1926, the stocks of large companies have produced an average annual return of nearly 10%.

  • (This includes the lows during the Great Depression, the 2000–02 stock slide that followed the collapse of the Internet bubble and the financial crisis of 2007–09).

What is a Stock?

When you buy a stock, you are purchasing an ownership share in the company that issues it.

  • If the company performs well, you reap the rewards as share prices increase. If the company performs poorly, the value of the stock declines.

    • Some stocks pay dividends. These are profits the company distributes to its shareholders.

Stocks are divided into categories based on the size or type of company. Some are riskier than others.

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available by the Kansas Securities here.