Stock is an ownership interest in a corporation.  The ownership interest represents a claim on the earnings and assets of the corporation based on the number of shares owned that may entitle you to a vote on corporate governance, financial benefits of ownership, and other matters.  One reason to purchase stock is because of the potential increase of the stock price over time.  Another reason to purchase stock is because of dividends paid to holders by the corporation.  Since the late 1980s and early 1990s, it has become easier for individuals to purchase stock without having a substantial sum of money to get started.  This has also resulted in more information being available to individuals to help with understanding investing using stocks.

Buying and selling stocks can be educational, financially rewarding, and fun.  One way to choose a stock to invest in is to select a company, industry, sector, or profession that you do business with every month as a consumer.  A second way is select a company whose product or service you need every month, throughout the year.  A third way is to take notice of a company name you see frequently when you travel.  A fourth way is to take notice of a company whose product is used by people all around the world.  A fifth way is to discuss investing with others you trust, feel comfortable with, and who own stocks.

Prior to buying stocks, you should take the time to (i) create a plan; (ii) perform research on a company you plan to invest in; (iii) understand how gains and losses are computed; and (iv) how to report stock transactions on Schedule D, Capital Gains/Losses of Form 1040 Individual Income Tax Return.  A Plan should be an exercise in investing discipline.  The plan should be your plan – what you want to accomplish, not someone else’s plan or what someone else thinks or says your plan should be.  For example, a plan can be to use $50 to buy stock or buying one share of a company’s stock for twelve consecutive months.  Research  on a company may include reading a company’s website to understand the mission, objective, product, service, partners, goals, results from operations, and future plans.  Research should also include learning what brokerage firms are available to use to purchase, hold, and sell stocks, and what the related fees will be.  Taking the time to learn how to complete Schedule D can give you a bigger picture of stock investing and help eliminate or reduce the cost of investing in stocks.  Due to the risks involved, investing using stocks should be your primary source of income when you are financially prepared for a health, economic, political, or social event that can disrupt many parts of your life.

Overtime you will learn stock terms that will build the confidence and understanding needed to invest in stocks month after month and year after year.  Some stock terms include –

• Basis is the cost of the investment which usually includes the price you paid for the stock plus fees to execute the stock transaction.  Basis in primarily a tax term that is used to compute gain/loss and complete Schedule D.
• Breakeven means to sell a stock for the same price as what was paid (purchase price plus fees, commissions, etc.), which results in no gain or loss.
• Broker is the person in between the buyer and seller of a stock that helps buyers purchase stock and sellers sell stock.  A brokerage account is needed to purchase and sell stocks; there are lots of brokerage firms and the best way to select one is to do research.
• Buy low and sell high means to look for an opportunity to buy a stock at a price higher than you expect the stock to be on some future date, so that when you sell the stock you make a profit.
• Capital gain, stock is a capital investment, so selling a stock at a higher price than what was  paid (or the basis) results in a capital gain.
• Capital loss is the difference between the cost to buy stock and the amount received when the stock is sold.  The amount received is also referred to as sale proceeds.
• Commission is the fee paid to a broker for executing the purchase and/or sell of a stock.  The amount of the commission is usually based on the number of shares involved in the transaction.
• Commodities are bulk goods such as grains, metals, and food that are traded on the commodities exchange or on the spot market.
• Common stock represents a unit of ownership in a corporation (called shares).  Common stock is also referred to as shares.
• Cost is the purchase price of a stock, plus fees such as commissions.  This is a tax term that is needed to complete Schedule D.
• Dividend is a distribution of a company’s earnings that is paid to persons who own the company stock, called shareholders.  Form 1099-DIV is issued to report the total amount of dividends paid to shareholders.
• Dow Jones is a stock index of a certain number and/or class of stocks, for example the Dow Jones Industrial Average or Dow Jones Wilshire 5000.
• ETF is a type of security made up of a collection of other securities (such as stocks or bonds) that often track an underlying index, industry, or sector.
• Fees costs paid to purchase, hold, and/or sell stocks.  Fees are charged by brokers and add to the cost paid to buy a stock or sell a stock.
• Fiat Money is currency that has no intrinsic value.  Its nominal value is what the issuing sovereign government engraves on paper.  Its real value is what it can buy.
• Index is a statistical composite that measures changes in the financial markets or economy, often as a percentage, from different periods of time.  An Index can measure the ups and downs of stocks, bonds, and commodities.  Common indexes include the Dow Jones Industrial Average, NY Stock Exchange Composite Index (NYSE), Standard & Poors 500 Index (S&P), NASDAQ, and Russell 2000.   There are Sub-indices for industries such as drugs, healthcare, railroads, software, and computers.
• Industry generally means, steady attention and effort to a specific commercial, industrial, or professional activity.
• Long-term, for tax purposes, generally means a holding period of at least 12 months.
• Mutual fund is generally operated by an investment company that raises money from shareholders to invest in stocks, bonds, futures, currencies, or money market securities.
• Preferred stock is a promise to pay holders a fixed amount of income every year.  Preferred stock is more like a bond, than common stock, because holders do not have voting rights and maybe callable.  In addition, there is no contractual obligation to pay dividends in which case the dividends will cumulate and must be paid to preferred shareholders before common shareholders.
• Price Earnings ratio (P/E) is the ratio of the current stock price to last year’s earnings per share.  The P/E tells how much a purchaser must pay per dollar of earnings that the company generates.
• Profit is the difference between the sales price and purchase price of a stock.  Commissions and fees charged for purchasing stock increases the total cost to acquire the stock and commissions and fees charged to sell a stock decreases the amount actually received when stock is sold.
• Purchase date is the date the stock was purchased.  This date may be the same or different from the date you tendered money to purchase the stock.  Usually, a confirmation notification is sent which will contain the purchase date.
• Russell Indices are float market-capitalization-weighted U.S. stock indexes that measure different segments of the market.  Common Russell Indices are Russell 1000, Russell 2000, Russell Midcap, and Russell Small Cap.
• S & P 500 (Standards and Poors) is a market-value-weighted index of 500 firms.  This Index is computed by calculating the total market value of the 500 firms and total market value of these firms using the previous days trading.  The percentage increase in the total market value from one day to the next, represents the increase in the Index.
• Sale date is the date a stock was sold, not the date a sale was requested or money was given to sale a stock.
• Schedule D (for Form 1040), Capital Gains and Losses is used to compute short-term and long-term gain and loss on the sale of capital assets such as stocks, stock options, crypto currency, commodities, and futures.
• Sector generally means groupings of companies that are likely to react similarly in a given national or global economic, political, social, or health situation.  Examples include tech sector, health care sector, and banking sector.
• Security is an instrument that represents an ownership interest, such as stocks and bonds.
• Shareholder is a person who owns at least one share of stock in a company.  Person includes individuals and corporations.
• Short-term generally means a period less than twelve months.
• Stock Indices and Averages are indicators used to measure and report the value changes of certain categories of stock.  Examples include the AMEX, Dow Jones, ICE, NASDAQ, NYSE, Russell, and S&P.
• Stock Market means the system used to trade or buy and sell securities.
• 1099-B, Proceeds from Broker and Barter Exchange Transactions is used to report the sale or exchange of stocks, commodities, and other securities.
• 1099-DIV, Dividends and Distributions is used to report the sale or exchange of capital assets, certain capital gain distributions, and nonbusiness bad debts.