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What are stocks?

In basic terms, stocks give you an opportunity to own a piece of a company. When you buy a company's stock, you essentially claim a share of the company's assets and earnings; you become a shareholder. 

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Why investors buy stocks.

They buy stocks in order to create wealth, achieve financial stability and independence, plan for retirement, vacation, or education. Stock investments offer the highest potential for building wealth in the long haul, compared to mutual funds, exchange-traded funds or index funds. But they are also riskier investments, compared to mutual funds or exchange-traded funds. 

How to purchase stocks.

You can buy stocks from a stock broker (Fidelity, E-trade, TD Ameritrade, etc.) at the day's current stock price.  Here are the steps you need  to take to buy stocks: 1) open a brokerage account; 2) fund your account; 3) decide how many shares of the stock you want to buy; 4) choose your order type. Stocks are traded (buying and selling) actively on a stock exchange, such as the New York Stock Exchange. As as result, a stock price changes constantly throughout the active trading hours (9:30 AM to 4:00 PM).

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Benefits & risks of stocks.

As an investor, owning stocks comes with risks and benefits. If the stock price goes down, you will lose money and vice versa. There is no certainty that a company whose stock you hold will prosper or do well. You can minimize risks by diversifying your portfolio (buying stocks from different sectors). Many factors influence a company's stock price, including but not limited to quarterly earnings reports, regulatory, political, economic and other events. 

How investors make money from stocks.

Investors make money in two major ways. First, they earn money through capital gains. A capital gain is essentially the increase in price of a stock to a price higher than the initial purchase price. Second, investors make money through dividends. Dividends are basically free money you get for simply owning a stock or being a shareholder. Dividends are usually paid to shareholders quarterly. Not all companies pay dividends. Check out this nice comparison between stocks, ETFs and index funds.

[Recommended: Best Stocks to Buy Right Now.]