What is a Stock?
A stock is a piece of ownership in a company.
When you buy stock, you are buying partial ownership of a company, including its assets and profits. After the purchase, you become a “shareholder.” If the company is profitable and successful, the stock price usually goes up. On the other hand, if the company is struggling, the stock price usually goes down. However, regardless of how well the company is performing, stock prices can fluctuate wildly.
A place, either physical or virtual, where shares of a company are bought and sold.
Investing in Stocks
Investing in stocks can be a powerful way to increase your wealth and save for the future.
Example: In 1919, when Coca-Cola went public, each share cost $40. In 2013, that share was worth $5,000,000.
However, because stock prices also plummet, you can lose money just as quickly as you earned it.
Example: In 2000, The Nikkei 225 stocks were worth approximately $20,500 per share. In 2003, those stocks dropped to $7,700 per share.
In addition to going up and down in value, stocks can also:
- Issue Dividends: Payments in cash or stock made by a corporation to its shareholders.
- Split: For every share the shareholder owns, the company issues the shareholder additional shares or fractions of shares. Companies often split shares when their stock prices reach high levels, but they want to offer the stock at a lower price to additional buyers who might deem the higher priced shares out of reach. For example, if your Coca-Cola stock is worth $100 and the company announces a 2-for-1 split, your $100 share would be divided into two equal shares of $50.
One Common Rule of Thumb
100 – (your age) = % of your portfolio to keep in Stocks
Younger investors tend to make riskier investments, and therefore keep a higher percentage of their investments in stocks rather than of that in bonds.
The most expensive share of stock is Berkshire Hathaway at over $200,000 a share.