Historically, stock has been the powerhouse of the investing world, consistently providing stronger returns over extended periods than any other investment category. Those higher returns result from a combination of increasing share prices plus dividend income, which is a portion of corporate profits paid out to stockholders.
Despite this record, many people think of stock as a risky investment because the prices of individual stocks and the stock market overall can fluctuate, often dramatically from day to day or even year to year. In addition, dividends can be reduced or even eliminated if the company issuing the stock suffers reverses. Other major asset classes, such as bonds and cash equivalents, tend to be less volatile and produce more predictable income.
The more you learn about the factors that affect stock performance, the more comfortable you may feel about allocating a percentage of your portfolio to them and diversifying among those with different capitalizations and in different sectors of the economy.
