Your Questions About Money Making Stocks To Buy

Chris asks…

How do stocks work, is a stock account paired with an instant bank account?

Can I have money in stocks, sell shares and hold the money waiting what to buy next? And then instantly buy shares when I decide? The more info the better, give me tips as well if you want. Thanks

John answers:

Sure, you can do that with almost any ‘discount’ brokerage account.** A brokerage account typically has a cash portion in the form of money market funds, which can be easily and quickly traded or moved in or out of the brokerage to/from, for example, your bank checking account. A money market fund is like cash, inasmuch as it always has (or is supposed to have) a NAV (net asset value) of exactly $1.00/share. Unlike a bank account that is FDIC insured, money market funds are not guaranteed. But they are considered very safe nonetheless. Once you have a large enough position in your money market fund, you can then buy sell and exchange any kind of securities you want, using the money market fund like cash.

I have included a list of some of the largest, more popular discount brokerage companies below:
Happy investing!

** Discount brokerages are intended mainly for the do-it-yourself investor who doesn’t want to have other people managing their investments and making investment decisions for them. In contrast, a full service brokerage like http://www.morganstanley.com, http://www.edwardjones.com or http://www.ameriprise.com usually has higher fees but also provides investment advice and investment management for those who just want to take a ‘hands off’ approach to investing and leave the process to experts.

Carol asks…

What factors influence a corporation to pay dividends or buy back stock?

I know some pay dividends regularly. And others buy back stock to raise the stock price.
But in terms of rewarding shareholders with special dividends or a special stock buy back, how do they decide? Does it depend on the management style? I know for example Steve Jobs didn’t believe in dividends.

John answers:

Some companies pay dividends (which should be more common than it is) as a payment from the profits of the company. Other companies prefer to take the money and either reinvest it in the company or buy other companies. Usually the companies that pay dividends are better run or are at least sure that they will continue to make a profit, and the stock price usually shows it.
As for buying back stock, it occurs if there are too many shares outstanding (causing the price of the stock to be very low) OR they want to raise the price of the remaining shares OR the price of the stock is greatly undervalued. If it is undervalued, buying back the stock is a good deal for all. But not all buybacks are good, they can be to hide the fact that the company is no longer doing well. Z

Maria asks…

How do stocks work in a corporation?

I always wondered. How does a corporation make money from people buying/selling shares of the company? For example, if one buys 1 share at $1.00 and then sells that 1 share at $2.00, they make a $1.00 profit, but how does this help the corporation? Isn’t the person just putting money into the corporation and retracting it back?

John answers:

They don’t! The company makes money in an IPO and then in secondary fund raisings. But the buying and selling of shares is in what is known as the secondary market, and none of the money goes to the company.

Mandy asks…

How does someone make money off of a stock or mutual fund if it isnt sold for a higher price?

So lets say you buy a stock or mutual fund and keep it for a year and the price of the stock or mutual fund is more expensive than what you bought it for.

But lets say you keep the stock or mutual fund and dont sell it. How are you supposed to make money off the investment. Does the company that you bought the stock or mutual fund give you a money deposit?

Can someone explain what happens with both stocks and mutual funds?

John answers:

Capital gains distributions and dividends

Mark asks…

How does the stock market work?

Im interested in buying stock but I never really understood the whole “stock” thing. How many shares of a company do you have to own to actually make money? When you see the company you invested in “go up” how can you tell how much you made? How do you disperse the money you made from stock? How do I get the money into my account or to spend? Just a crash course would be nice. Thanks.

John answers:

You need to own just one share of stock to make money, provided it rises above your purchase point and does so enough to more than offset the commission fees in both directions.

To determine profits or losses, multiply the difference between your cost basis (amount you paid) and the revised price you’d pay if buying it at the later date.

When I sell for a profit, I have the gains wired to my checking account. That money is available to me for food, gasoline or whatever I choose to do with it. To obtain your profits, simply call the broker and instruct that a certain amount of money be sent to your home. Or you can set up an “ACH” whereby money is transferred on a one-day basis directly into your bank account. I do the latter arrangement so that I have nearly immediate access to the funds as I may wish. ACH = automated clearing house. It is a no-fee electronic withdrawal or deposit system that is really effortless and free.

Len

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