While there are many ways to invest your money, investing in a company is among the most potentially profitable. Every investment carries some risk, and investing in a company is no different. However, investing in a company can be a good idea for a number of reasons, whether it takes the form of a stock purchase or an investment in a small business that isn't traded publicly yet.
The primary reason that most investors choose to invest in companies is to profit by waiting for the value of their investments to grow. The most common way to invest in a company is to buy stock, which represents a portion of ownership in the company. As the value of the company rises, or as demand for its stock rises, so too does the price of each share you own. Buying for a relatively low price and selling once the price rises is how stock market investments make money for investors.
Investing in a company can provide an ongoing source of income. This occurs when you invest in a company by buying dividend stock. Dividend stock is a type of stock that pays out a quarterly cash payment to owners for each share they hold. Investing in a company by buying dividend stock means you'll receive four payments each year, which you can use to pay your living expenses or fund other investments while you wait for the share price to rise until you want to sell.
Diversification of investments refers to putting your money into several different types of investments to spread out your risk and improve your chances of earning profits. If you already have investments in the form of savings accounts, real estate, collectibles and certificates of deposit, investing in a company is one way to diversify your portfolio. Even if you don't want to put much money into stocks or small businesses, placing some of your money in a company with the potential to grow is usually a good idea.
Control and Support
Investing in a company also has the benefit of giving you some measure of control in the business, as well as a means of supporting its operations. In an initial public offering, or IPO, a company sells stock for the first time and allows investors to provide the cash that it needs to grow in new directions. Owning corporate stock also allows you to vote at the annual meeting, where important leadership and policy decisions are made. Investing in a small business may keep it afloat during its difficult first years, allowing you to fund a company you believe in until it can become sustainable and profitable on its own.
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