A stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. When the value of the business rises or falls, so does the value of the stock. Stocks are generally bought and sold electronically through stock exchanges, the two primary ones in the United States being the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). While some companies sell stock directly to investors, most only sell stock through a brokerage such as Schwab. Investors buy and sell stocks for a number of reasons including the potential to grow the value of their investment over time, to potentially profit from shorter-term stock price moves, or even to earn an income by investing in dividend-paying stocks. Keep in mind that the price of a stock can fall as easily as it can rise. Investing in stock offers no guarantee that you will make money, and many investors lose money instead.
Stocks are an important part of any portfolio because of their potential for growth and higher
returns versus other investment products. In order to determine how much you should allocate to
stocks, you should first develop a comprehensive financial plan that reflects your investment
horizon and the level of risk you're willing to accept in exchange for the potential upside
stocks can offer.
Asset classes perform differently, and it's nearly impossible to predict which asset class will perform best in a given year. If you had invested $100,000 in just U.S. Stocks in 1997, it would have almost quadrupled to $400,000 by 2017, but there would have been many ups and downs due to volatility. A more diversified investment portfolio would have had a lower return, but reduced volatility.
Some stocks pay regular dividends—that's income you can keep or reinvest
Since stocks trade by the millions every day, you can move quickly when you're buying or selling
While stock performance changes over time, successful stocks can help your money grow—at times, they can even outrun inflation
You decide which company to invest in, when it's time to buy, and when it's time to sell.
Stocks let you own a piece of a company's future. They're available for a wide variety of industries-so you can tap into your knowledge of specific businesses, or help you to diversify your portfolio.