A stock is an investment in a company that is publicly traded. When you purchase a company’s stock, you’re purchasing a small piece of that company, called a share. As a shareholder, you share in the company’s profits, and over time investors hope the company will earn more in the future increasing the value of the stock higher.
Public companies offer their stock through a stock market exchange, like the Nasdaq or the New York Stock Exchange. Investors can buy and sell shares through the exchanges, and supply & demand will affect the stock’s price daily. Since a company can fall on hard times, or altogether go out of business, to lower their risk investors can buy stocks in mutual funds. These funds have hundreds if not thousands of different company stocks to help spread their risk as stocks can be risky and volatile investments.
Over time investors can be rewarded with great returns taking on this risk. According to LPL Financial, from 1928 to 2016 the average return for the S&P 500 Index was 9.8%. Investors owning 500 of the largest US corporations in this index did pretty well over the long run. There are bound to be some ups and downs, but those who stay the course, in the long run, are rewarded.