A stock is a financial security that represents a partial ownership stake in a company. Its owners, called shareholders, are owed a proportional claim on a company’s net assets and future earnings. Publicly-traded stocks are a key component of many investment portfolios, although they do expose investors to near-term risks. A diversified portfolio can help mitigate risk and maximize return.

In the short term, stocks move up and down depending on the overall market environment, investor sentiment and other factors that affect supply and demand. Stocks typically pay dividends and offer voting rights, which can improve an investor’s bottom line. But investors should consider their investment goals, tolerance for volatility and the likelihood of future inflation when determining how to allocate their capital.

The price of a stock is determined by the overall market, and how the company’s own performance compares to that of its peers. This is why it’s important to do thorough research before investing in any stock.

Stock research often involves analyzing a company’s finances, leadership team and competition. It’s also important to understand terms like revenue, earnings per share and the price-earnings ratio. This can help you determine whether a particular stock is undervalued or overvalued. Some people prefer to use fundamental analysis to evaluate the value of a stock. While this approach is based on a company’s current and historical performance, it also takes into account forecasts and predictions for the business and industry.

Other factors that influence the price of a stock are the global economy, sector performance and government policies. A booming economy, high consumer confidence and low unemployment can boost demand for certain goods or services, which may lead to increased stock prices. Conversely, economic turmoil or a natural disaster can cause a stock’s price to plummet.

The stock market is a volatile place and it can be hard to stay invested. For this reason, many people choose to invest in stocks through mutual funds. This way, they can diversify their exposure and avoid the need to constantly check how the market is doing.

While stocks have historically provided higher returns than other asset classes, they can still be volatile in the short term. That’s why investors should always view them as long-term investments and focus on maximizing their potential to grow. It’s also a good idea to establish a well-diversified portfolio and limit the number of individual stocks you hold. This can help reduce the impact of any single stock’s price fluctuations and improve your chances for long-term growth.