Stocks
An ownership share in a company, offering growth potential along with market risk.
What is it?
A share of stock represents partial ownership in a corporation, entitling the holder to a proportional claim on assets and earnings, and often voting rights.
How does it work?
Stocks trade on public exchanges; prices move based on supply, demand, and expectations about the company's future earnings and prospects.
Why do people use it?
Used for long-term growth, as a way to participate in the growth of businesses and the broader economy.
Potential advantages
- Historically higher long-term average returns than cash or bonds, though not guaranteed
- Ownership stake in real businesses
- High liquidity on public exchanges
Potential disadvantages
- Prices can decline significantly and without warning
- No guaranteed return or principal protection
- Requires tolerance for volatility
Risks
- Market risk
- Concentration risk if holdings aren't diversified
- Company-specific (business) risk
Quick facts
- Liquidity
- Generally high — shares of publicly traded companies can typically be bought or sold quickly during market hours.
- Fees
- Trading commissions (often $0 at many brokers today), and any advisory or fund fees if held through a fund.
- Taxes
- Capital gains and qualified dividends are taxed per current tax rules, which depend on holding period and income.
- Guarantees
- None — value depends entirely on the company's performance and market conditions.
- Non-guaranteed elements
- Price, dividends (if any), and the company's continued operation are all non-guaranteed.
- Time horizon
- Often suited to longer time horizons, given short-term volatility.
- Who typically considers it
- Investors with a long time horizon and tolerance for volatility, seeking growth.
- Who regulates it
- The SEC regulates stock markets and public company disclosure; FINRA oversees broker-dealers.
Questions to ask a professional
- What is my risk tolerance and time horizon?
- Am I diversified, or concentrated in a few companies?
- What fees am I paying to buy, hold, or sell?
This is educational information, not a recommendation to buy, hold, or avoid this product. Whether it fits your situation depends on your goals, other holdings, and circumstances a licensed professional can help you evaluate.