Original post by fg45344I like to invest in companies for several reasons.....
1) growth stocks (like Apple, Starbucks)
They don't pay much dividend but they are great companies, they have a potential for a lot of growth. Apple is the world leader in computers and phones, it's almost cool to own a mac. The same goes for starbucks, the brand loyalty is so strong with them. All the cool people have to own a mac and drink starbucks unfortunately, it's this mentality that leads to great brand loyalty and profits. Starbucks could create their own water and people would buy it to look cool.
2) dividend stocks (like legal and general, BP)
These stocks don't have too much potential for growth because they pay out on average 7/7.5% of their earnings in dividends. I can use the dividend money to buy more stocks when the price is right...you have to buy at a good price, no point overpaying for a stock. Dividend stocks are usually less glamorous, they don't have the cool factor of starbucks or apple. They provide usually essential services and are solid as a rock. When you buy a stock like BP, you are planning to hold it forever, as like most dividend stocks.
The bottom line is those companies are all immensely profitable, and I have (I hope) paid a fair price for them. You want your portfolio to balance dividend and growth stocks and also have some bonds (as a hedge against market downturns).
As you age you want to allocate more of your portfolio towards bonds, as you can't afford wild market swings. Imagine the day before you retire, the stock market crashes, so before retirement you want to be mostly holding bonds.
You can take risk when you are young, as the market will correct itself over time, when you get old, you are running out of time.
If you want finance lessons, I can more than happily answer your questions on here. My masters degree was based in finance.