" can be located in newspapers

If there are one million shares
outstanding of Company X, and you own one share, you in effect own
one-millionth of that company - its assets and the profits it is able
to produce over time. The more shares you own, the more you benefit
from a company's growth.

Why Do Companies Issue
Stock?

Businesses need money, or
"capital," to grow and thrive. A company will typically
issue stock to raise money for financing operations, acquiring new
equipment or other companies, fund research and development, and
other such uses.

Another term for raising money
through stock issuance is "equity financing," and the
capital produced through this method is referred to as equity
capital. Companies might also issue bonds to finance various
activities; this is referred to as "debt issuance."

What Categories of Stock
Exist?

Also called "equities,"
stock can be categorized several ways. The first is by size, or
"market capitalization": A company's net market
capitalization is measured by its share price multiplied by the
number of shares on the market. To use the example above, if Company
X's share price is $10, its market capitalization (or "cap"
for short) would be $10,000,000 - one million shares outstanding
multiplied by $10 per share. Generally, companies with $1 to $1.5
billion in market capitalization are considered "small cap"
stocks, those with between $1-1.5 billion and $5 billion are
considered "mid cap" stocks, and those with market caps
above $5 billion are considered "large cap" stocks.

Another way to categorize stocks
is by style. "Growth" stocks are those considered to have
the potential to expand their sales, revenue, and profitability
quickly. "Value" stocks are those believed to be
undervalued by investors and thus selling for less than their
intrinsic value.

A third way to divide stocks is by
geography. Stocks of U.S. companies are considered "domestic"
stocks, while those of companies outside the U.S. are considered
"international" stocks. Typically, international equities
are further divided into "developed" (such as Europe or
Japan) or "emerging" (China, Southeast Asia, Latin America)
markets. Foreign investing involves additional risks, such as
currency fluctuations and political uncertainty. Investment return
and principal uncertainty. Investment return and principal value will
fluctuate so shares, when redeemed, may be worth more or less than
their original costs.

Finally, stocks can be categorized
by sector and industry. Common categories include technology,
communication, healthcare, energy, financial services, consumer goods
and basic materials, which may respond differently to economic
changes.

How Can I Buy Stocks?

Typically, investors purchase
stocks through entities known as exchanges. These marketplaces
include the New York Stock Exchange, the American Stock Exchange, and
the NASDAQ Stock Market. The exchanges are merely a way to connect
those who want to buy shares with those willing to sell them. How do
you know what a stock is selling for? Stock prices, or "quotes,"
can be located in newspapers, on certain television programs, and
through the Internet.

Another way to own stocks is
through mutual funds.

Why Should Individuals Own
Stocks?

Over time, stocks have proven
themselves to be the most powerful way to accumulate wealth,
outpacing bonds, government securities, and inflation. Stocks provide
individuals with the opportunity to benefit from growth in the U.S.
economy as companies expand their sales and profits.

Stockholders can benefit from
owning stocks in two ways: First, through price appreciation, as the
price of their shares goes up; and second, through dividends, which
many companies pay on a regular basis. Together, these factors make
up your stock's total return.

What About the Risk?

Many people have heard of or
experienced events such as "Black Tuesday," in October
1929, when the Dow Jones Industrial Average nosedived 12.8%, and,
more recently, "Black Monday" in October 1987, when the Dow
lost 22.6% of its value (still the worst single trading day on
record). More recently, we saw stomach-churning drops in 1997 and
1998, and endured a long bear market from 2000 through 2002.

And it is true that, in the short
term, investing in the stock market can be risky. Markets tend to be
volatile, responding quickly and forcefully to events and news such
as the 9/11 terrorist attacks, rumors of economic changes,
presidential elections, and geopolitical happenings. Individual
stocks face risks as well. A company, because of poor business
conditions or poor management, could become unable to make dividend
payments. Or it could fail completely, leaving your stock essentially
worthless.

Over the long term, however,
stocks have earned higher and more positive returns than any other
financial investment. These higher returns help offset the risks of
investing in stocks.

Diversification Can Reduce
Risk

Among the risks you face in the
stock market is the risk that you will have to sell an investment for
less than you paid for it. If you buy stock in many different
companies, in many different sectors of the market, you can minimize
your risk. After all, it is highly unlikely that every company in
which you have invested will suffer at the same time. However
diversification does not protect against loss.

You can also minimize your risk by
investing some money in international stocks. Historically, when the
U.S. stock market has dropped, markets in Europe and Asia have
dropped less, or even risen in value. Although we live in an
increasingly global economy where economic events have an impact
everywhere, global diversification should still be a part of your
plan.

What Role Should Stocks
Play In Your Portfolio?

In general, your stock market
investments should represent money you won't need for at least 10
years. That time frame allows enough time for your investments to
ride out the inevitable growth/recession economic cycles and
bull/bear market cycles. Certainly younger people investing for their
retirement should consider putting a substantial portion of their
funds in stocks. One very general rule of thumb is that the
percentage of your invested assets should be at least 100 minus your
age - 70% for a 30-year-old.

Investing in stocks may also be
appropriate for retirees who don't need all of their money and are
trying to maximize what they will pass onto their heirs. Your best
bet is to work with a financial advisor to determine the optimal
amount you should allocate to stocks.

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