Welcome to Money Basics, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important terms involving your money.
You’ve probably heard people taking about buying and owning stocks, but have you ever wondered what a stock is exactly? A stock is a unit of ownership in a company. Buying stock is essentially buying a claim on part of a corporation’s earnings or assets. These claims are called shares, which are issued by the company in a certain volume, which can be anywhere from hundreds to thousands or even millions of shares. Stocks are bought and sold on a stock market, such as the New York Stock Exchange.
Buy low, sell high
As a stockholder, you have a right to sell your shares for a profit or a loss depending on the price point you bought and sold them. If you bought low and sold high, you made a profit. If the opposite is true, then you took a loss.
The purpose of stocks is to give corporations the ability to raise money without taking on more debt. They sell shares in return for money, and the value of the shares increases if their business does well, which in return gives a positive bump to investors.
Stocks do not represent direct ownership in a company—they don’t give you the right to walk into the building and take an office chair—but they can come with a bit of influence over the corporation you buy stocks from.
Generally, stockholders have a right to vote in shareholder meetings. The more stocks you own in a particular company, the more votes you have and the more say you get in the business. If you own more of a company’s stocks than other shareholders, you might find yourself being in charge of seats on the board of directors or directly influencing business decisions from the top.
Whether you are just looking to invest in the market or grow your retirement fund, stocks are an important part of a diversified portfolio. Understanding the basics of stocks is a good step toward building your finances.
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