Stocks represent ownership of a company, entitling shareholders to a fractional share of the corporation’s assets, profits and voting rights. The value of a share can rise or fall depending on market conditions and other factors such as company growth and mergers and acquisitions. If you’re looking to grow your wealth, having stocks in your portfolio may help, particularly if you plan on holding the shares for the long term.

While stocks can provide a potentially high return over the long term, they also carry certain risks that should be considered before investing. Generally, stocks have higher rates of return than bonds, but they’re more volatile in the short term. In general, investors should include stocks in their portfolios as part of a diversified investment strategy.

When determining a stock’s value, there are two major things to consider: the fair value of the share based on the company’s fundamentals and the market value of the share based on what individuals are currently willing to pay for the share. To conduct a valuation, you’ll need to know the starting and ending stock prices for the period you’re measuring and then calculate the average annual return (CAGR) using the formula CAGR = (ending value of the stock – beginning value of the stock)/(number of years).

In addition to making money when the stock price rises, shareholders can also earn dividends. These dividends are paid by companies based on their earnings and can be taxed at either capital gains or ordinary income rates. There are also some cases when a company will issue multiple classes of stock, with each class having its own set of voting rights. For example, Alphabet, the parent company of Google, has three different classes of stock, each with a different voting percentage.

A company issues shares in the primary market through an initial public offering (IPO), private placements, debt offerings and other times when it sells a portion of its business. The stock is then traded in the secondary market on exchanges such as the New York Stock Exchange and Nasdaq.

The issuance of stock is often used to raise funds for business expansion, paying off debt or to purchase other businesses. As the economy grows and a company’s revenue increases, so will its profits, which can result in an increase in the stock price. Shareholders can then make money when they sell their stock for a profit.

Some people buy and sell stock to seek out profits from rising prices while others do it based on their opinion of what the stock will be worth in the future. Investors can also sell a stock if they believe it’s not a good fit for their goals or risk tolerance, which is why it’s important to know what they’re getting into before purchasing a share. Lastly, investors should be aware of all the fees involved in trading, including brokerage account and transaction fees, which can subtract from the overall profitability of a trade.