A stock is a share of ownership in a publicly traded company. Investors buy shares in companies they think will prosper and then hope the value of those shares go up so they can sell them for a profit. As a general rule, investing in stocks is more risky than investing in other types of investments, like bonds, real estate and cash. But it can also deliver some of the best returns over time.
Many people use the proceeds of selling their stock to help fund retirement and other long-term financial goals. In fact, stocks are one of the core tools used by investors to grow their savings. But the price of a share is volatile and can sometimes plummet. The value of a stock depends on the company’s performance and how well the overall economy performs.
There are a variety of ways to buy and sell stocks, including through financial advisors, online brokers and trading apps. Investors who want to build a diversified portfolio of individual stocks should consider choosing a broker with lower commission rates and low minimums. NerdWallet’s ratings of top-rated brokers and robo-advisors take 15 factors into consideration, including fees and minimums, investment choices, customer support and mobile app capabilities.
Stocks are a type of security, meaning they represent a claim on a company’s assets and earnings. That’s why they’re called securities, and that’s also why it’s important to diversify your portfolio by buying stocks in a variety of companies large and small in industries ranging from technology to health care.
When a company issues a stock, it usually does so during an initial public offering (IPO). During that process, the company and its advisors disclose how many shares of the company will be sold, at a specified price per share. The money raised by the sale of those shares goes directly to the company. Stocks are then traded on the secondary market, which is known as the stock market.
A company’s stock price can rise or fall based on a number of factors, such as the company’s ability to generate revenue and profits, the overall economic environment, and investor sentiment. For example, if the company’s product line is losing favor with consumers or its latest earnings report is disappointing, it may see its stock price drop.
In some cases, a company may issue stock to raise money for expansion or to reward employees. These stocks are often called growth or growth-oriented, because they are associated with companies that are growing faster than others. These stocks can be more risky for investors because they tend to experience bigger price fluctuations, but they can also offer higher returns.
If you invest in the right companies, you can become part of a team that makes the world better and earns handsome rewards. But there are no guarantees that you’ll make any money, especially if you hold your stock for an extended period of time. As a result, you should carefully research any company before investing, and consider using the help of an expert to manage your portfolio.
