Essay on The Significance of Stocks in Personal Finance

Essay on The Significance of Stocks in Personal Finance

Length: 1651 words (4.7 double-spaced pages)

Rating: Term Papers

Open Document

Essay Preview

Investing in stocks involves owning part of a company’s equity which effectively enables the shareholder to receive a portion of the company’s earnings and assets in form of dividends. Stocks are generally categorized as either common stocks or preferred stocks whereby common stock allow investors to vote on key issues but do not guarantee of dividends (Markowitz 78). Preferred stocks on the other hand do not provide voting rights but assure stockholders of dividend payments. Investing in stocks offers investors comparatively high returns relative to treasury securities but the investments also have high inherent risk. Stocks are purchased through licensed stockbrokers who range from the discounted order-taking online brokers, to the pricey full-service brokers and money managers (Sourd 112). Despite the type of broker an investor opts for, the stock market has the potential to generate high returns through an investment strategy. One of the main strategies employed is diversification which involves the purchasing of different stocks with varied performance and rates of returns in order to spread out the risk of the individuals stocks across a portfolio. Investing in stocks is therefore one of the most profitable alternatives of personal financial planning, and should be considered as one of the investment vehicles that generates an additional income stream.
Significance of Stocks in Personal Finance
Personal income is considered to be a person’s total earnings which can be obtained through wages and salaries, personal business activities, social aid and investment. The choice to invest one’s finances rather than spend on consumption has an overall impact of increasing income as a result of future cash inflows from the invest...

... middle of paper ...

...g is also important in fulfilling financial obligations such as debt capital, annuities as well as savings. An effective personal financial plan should manage risk through diversification of investment capital, and the stock market provides investors with a viable option for diversification. Investing in stocks is considered one of the most profitable alternatives of personal financial planning, and is generally included to financial plans as an investment vehicle for additional income streams. Investing in stocks also has several benefits, key among them being increasing current and future cash inflows from investments. In addition, stocks offer investors a viable option through which they can achieve their financial goals for retirement, saving or consumption. Stocks are therefore useful securities that can be used to build wealth and secure financial stability.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Coca Cola Company Stock Analaysis Essay

- COMMON STOCKS Personal Finance Stock Chosen: The Coca Cola Company Stock Symbol: KO Last Trade Price: $43.02 1. Chart: The Basic Chart page includes information pertaining to the past 52 weeks, splits, basic stock information and the option to compare the stock with other stocks. It basically shows the "now" and "then" information of the stock. There is also a technical analysis hotlink that allows a person to see different aspects of the stock including moving average, range from one day to the day the company came to the market and volume....   [tags: Business Finance]

Free Essays
839 words (2.4 pages)

Are Theories of Dividend Payment Applicable in the Real World Essay

- Introduction Dividends are the distribution of profits in the company. It depends on the type of dividend policy made by companies. Dividend policy will affect the behaviours and attitudes of investors towards the company. Many economists or financial experts have constructed different theories to interpret the effects of a dividend policy to the society. But these theories are contestable since they are not tested in the real world. Managers’ decision on determining the size and time of a company’s next dividend payment is also important for both companies and shareholders....   [tags: corporate finance]

Term Papers
1490 words (4.3 pages)

Indexing in Investment Strategies and Behavioral Finance Essay example

- The aim of this report is to evaluate and validate passive investment strategies and advantages of having index funds in the portfolio. The importance of passive investment strategy is initially justified with the help of theory on efficient markets. The report then provides evidence that indexing still is a vital aspect of investment strategy and is not influenced by the efficient market theory. The report also gives a brief overview on how investors utilize indexing to minimize transaction cost by replicating the market index in their portfolio....   [tags: Management, Stocks, Funds]

Term Papers
1916 words (5.5 pages)

Finance Personal Statement Essay

- Finance is a field that had always fascinated me right from my undergraduate college days. What make me interested in this particular field of study are the art of finance and the complexity of investment market which would allow me to employ my personal skills, such as analytical and communication skills, along with my personal characteristics such as dedication and compassion for what I do. As one of the most important sector in the world, I believe it would provide me with a broad range of career options....   [tags: Personal Statement Examples]

Term Papers
548 words (1.6 pages)

Finance Q & A Essay

- 1. Explain why market prices are useful to the financial manager. The financial manager is responsible for giving financial advice and support to clients and colleagues that will enable them to make good business decisions. Particular work environments differ considerable and involve both public and private sector organizations such as retailers, corporations, financial institutions, charities, and even small manufacturing companies and schools (Financial Manager, 2011). Primarily, financial managers look at the market price in maximizing the value of the firm....   [tags: Finance]

Term Papers
959 words (2.7 pages)

Role of Micro Finance in Pakistan Essay

- Half of the world’s population is living below or near poverty line, which is 2 or less then two US dollars. To encourage the development and eliminated poverty UN have announced their goal of millennium to eradicate poverty till 2015. Pakistan is 87th poorest country of the world and 23% of its population is living under poverty line, which is US$ 1 per day. Micro finance is a method to alleviate poverty and empower, and raise the living standard of poor people. Micro finances are provided by the MFIs, who address the financial needs of poor people, neglected by the conventional financial institutions....   [tags: Finance]

Term Papers
3879 words (11.1 pages)

Finance: Stocks Vs Treasury Bonds Essay

- Historically speaking, stocks have been found to be no more risky than Treasury bonds. Over the past twenty years vast research has been done on this subject. Jeremy Siegel of the University of Pennsylvania’s Wharton School stated that, “The safest long-term investment for the preservation of purchasing power has clearly been stocks, not bonds.” Since the mid nineteen twenties, company stocks have average annual returns close to 11%, while on the other hand, Treasury Bonds only return with a little over 5%....   [tags: essays research papers]

Free Essays
510 words (1.5 pages)

Stocks Essay

- In this study, we would measure an investor’s experience as closely as possible. Therefore, in a portfolio formation, we assume an investor who follows reported insiders trading information and at the end of each month, he forms his portfolio by including all stocks that have been traded by insiders in the same month. After that he gives equal weights to each stock in his portfolio. He keeps each stock in his portfolio for X months following insiders’ trades. Furthermore, he rebalances his portfolio every month to drop all stocks that have completed X months in the portfolio and add all stocks that have been just executed....   [tags: Business, Investment, Portfolio Information]

Term Papers
2162 words (6.2 pages)

Essay on Finance

- Finance Wikipedia's accurate definition of finance is "The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their financial affairs, particularly the differences between income and expenditure and the risks of their investments" I discuss the importance of keeping track and updating financial reports as well as simple bank statements. These are just some of the essentials that I believe we all as a people should acknowledge....   [tags: Business Finance]

Term Papers
1805 words (5.2 pages)

Essay on Stocks

- Originally published in 1973, the book recommends a buy-and-hold strategy using dollar cost averaging. The book also talks about some historical investment crazes; or as Dr. Malkiel calls them, creating “castles in the air.” For instance: • Tulip Bulb craze: Tulips imported into Holland from Turkey during the 17th century gained instant popularity. According to Investopedia: “The true bulb buyers (the garden centers of the past) began to fill up inventories for the growing season, depleting the supply further and increasing scarcity and demand....   [tags: Stock Market Analysis]

Term Papers
1045 words (3 pages)