Stock
Definition
A stock represents ownership in a company and a claim on part of its assets and earnings, giving shareholders voting rights and potential dividends.
Explanation
When you buy stock, you become a shareholder and part-owner of the company. Stocks offer potential for capital appreciation and dividend income. They are more volatile than bonds but have historically provided higher long-term returns. Common stock gives voting rights, while preferred stock typically does not but offers fixed dividends.
Stocks are traded on exchanges like NYSE and NASDAQ. Investing in individual stocks carries company-specific risk, which diversification across many stocks helps mitigate.
Example
Buying 100 shares of a company at $50/share costs $5,000. If the price rises to $65, your investment is worth $6,500 — a $1,500 gain (30% return).