Stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Shares, equity, or stock, it all means the same thing.
At some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).
Holding a stock means that you are one of the many owners (shareholders) of a company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock. The importance of being a shareholder is that you are entitled to a portion of the company's profits and have a claim on assets. Profits are sometimes paid out in the form of dividends.
The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid.
There are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. There is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case your investment is worth nothing.
There is also a bright side to the risk. Taking on greater risk demands a greater return on investment. This is the reason why stocks have outperformed other investments such as bonds or savings accounts. Over the long term, an investment in stocks had an average return of around 10-12%.
At some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).
Holding a stock means that you are one of the many owners (shareholders) of a company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock. The importance of being a shareholder is that you are entitled to a portion of the company's profits and have a claim on assets. Profits are sometimes paid out in the form of dividends.
The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid.
There are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. There is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case your investment is worth nothing.
There is also a bright side to the risk. Taking on greater risk demands a greater return on investment. This is the reason why stocks have outperformed other investments such as bonds or savings accounts. Over the long term, an investment in stocks had an average return of around 10-12%.
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