COMMON INVESTMENT TERMS EXPLAINED: Part 10

Welcome back for another round of stock market terms! As always, let us know if you have any questions.

Capital Gain: Assets that are held for less than one year and sold for a profit are subject to ordinary income tax. This is also called a short-term capital gain. An asset that is held for more than one year and sold for a profit is considered a long-term capital gain, and the tax rate is 20%.

Common stock: The basic unit of ownership in a corporation. Holders of common stock have certain rights, including voting on major issues concerning the corporation. When you buy stock, you are usually buying common stock.

Dividends: Profits paid to shareholders of the company. The board of directors authorizes the payment, usually quarterly. Commonly, dividends are in the form of cash, but may instead be additional shares of stock. Dividends are taxable.

• Companies with good opportunities for growth will usually elect to spend the money on expansion rather than giving it back to the shareholders in dividends, theoretically resulting in higher prices for the stock, which means greater gains for shareholders when they sell their stock.

Thanks for reading! Stay tuned for more terms next week.