Stock is an investment that represents partial ownership of a company. Each share of a stock is one piece of the total ownership of a publicly traded company and it’s one way that ordinary people can invest in some of the world’s largest companies. The value of a share can rise or fall depending on various factors, including market conditions and investor sentiment. Shares trade on a public exchange, which makes them more liquid than other investments, such as real estate or equipment, that can take longer to sell.
In addition to helping investors make money by gaining the potential to appreciate in value, stocks can also help provide a steady stream of income. Many companies pay out dividends, which are a portion of profits to shareholders, on a quarterly basis. These dividend payments can help investors diversify their portfolio and supplement their income, especially if the company’s stocks have been performing poorly.
When investing in stock, it’s important to have a long-term perspective. Over time, stocks have historically posted strong returns compared to other types of investments, such as bonds or real estate. Nevertheless, it’s not possible to predict the future performance of any particular stock or investment.
Aside from providing the opportunity to make money through capital appreciation, stocks can be a way to connect with brands and products that you’re passionate about. For example, you might want to include shares of Apple or Google in your portfolio to support these companies’ missions and values.
Investors also benefit from being able to participate in a stock’s annual shareholder meetings, where management will report on company performance and disclose their plans for the future period. If you don’t like what you hear, you can vote for changes in management at the next meeting. Some companies have multiple share classes, each with specific voting rights. For instance, Alphabet, the holding company for Google, has three different share classes: Class A, Class B and Class C. Each has its own unique voting rights, which are usually designed to help founders retain a level of control over the company.
If prospective buyers outnumber sellers at a given moment, the price of a share will rise. This is known as “demand,” and it’s a key driver of the market’s appraisal of a stock at any given moment. Eventually, new buyers attracted to the high asking price enter and/or existing sellers leave, bringing about equilibrium between demand and supply.
Buying stock requires a brokerage account, which you can open through an online broker. Competition has driven the cost of brokerage fees down to near zero, making this a highly accessible and affordable type of investment for most people. Investors wishing to buy individual stocks can also choose to use mutual funds or exchange-traded funds instead, which offer more diversified options with lower fees.
