Identification

• Investing in stocks can be fun. The average investor can claim part ownership in their favorite companies. However, favorite companies are not always the best investments. Oftentimes, the best stock investments are in blue chip companies, those known for their stability and steady stock prices, regardless of current economic issues. Blue chip companies pay smaller dividends on average, and are not as volatile and exciting as growth stocks, yet tend to provide decent yields over the long-term at a lower risk.
  
  

Types

• Growth stocks, i.e., those issued by newer companies, present the investor with a potential for a high return through future capital gains. On the other hand, companies whose securities are classified as growth stocks rarely pay dividends, instead retaining earnings for internal reinvestment. Income stocks, those that pay large dividends, can be used to generate income. However, the investor loses the power of compounding by not reinvesting earnings.
  
  

Function

• Historic trends indicate that stocks are a good long-term investment. According to CNN, since World War II, stocks of large American companies have yielded on average an annual return of 10%. The North America Military Financial Education Center extends those figures back to 1926, with the emphasis on long-term average. A stock portfolio can easily lose more than 10% in a short time and a single stock may lose 50% of its value in the short-term.
  
  

Liquidity and Transaction Fees

• Most common stock of public companies traded on the U.S. markets can be sold quickly if need be. However, the price may not be suitable for an investor that is forced to sell at a particular time to obtain cash. In addition, transaction fees assessed to complete the sale cuts into potential profits. For investors who choose to go alone and not hire a broker, transaction costs can be reduced significantly. Yet, investing without expert advice requires a substantial amount of initial research, and a willingness to remain updated on the market in order to profit over the long-term.
  
  

Stock Prices are Volatile

• Stock prices are affected by political events in the nation and around the world, by the latest reports on the jobless rate, interest rates, and the rate of inflation. Prices are affected by reports from the housing market and any other event that investors think could affect the value of a stock. Nonetheless, historic trends indicate that current economic data tends to have a temporary effect if the investor remains determined to hold a diverse stock portfolio of stable companies.