Stocks
Stocks are equity investments, which means that when you buy stock in a corporation you become a shareholder and actually own a part of that corporation. Of course, your equity, or ownership, in a corporation which may issue millions of shares is much smaller than the equity you have in real estate you purchase. What's similar is that you own something that you have the right to sell or hold onto, as you choose.
There are two main reasons to buy stocks:
You expect the price per share to increase so you can sell your shares in the future and make a profit.
You expect the stock to generate income in the form of dividends.
Some stocks tend to do one or the other, and some stocks do both.
The reason that stocks are popular investments despite the fact that they can be volatile, or change value rather quickly within a short time, is because historically stocks in general have provided stronger returns than other securities.
Measuring return
You can use the amount of dividend income plus the increase (or decrease) in value to calculate your total return. That's an important measure of how profitable your investment has been.
For example, suppose you bought a stock one year ago at $20 per share, which paid a 50–cent per share dividend, and now sells for $21.75. Your total return for the year would be 11.25%, calculated by adding the $1.75 per share increase in price and the 50–cent per share dividend and then dividing by the original purchase price ($21.75 – $20 = $1.75 + 0.50 = $2.25 ÷ $20 = 0.1125 or 11.25%).
