A share of stock represents a partial ownership stake in a public company. Individual companies may issue stocks to raise money, and most trade publicly on a market exchange, making it easy for investors to buy and sell shares. Companies can also use stock to reward shareholders, and many offer dividend payments based on a percentage of profits.

A stock’s price can rise or fall depending on a variety of factors, including the company’s performance, industry trends and investor sentiment. Stocks can play an important role in an investment portfolio, offering a potentially high return potential compared to other asset classes like bonds and real estate.

While there is no guarantee that investing in stocks will produce returns, history shows that they have generally outperformed other assets over the long term. However, stocks are volatile and can experience significant losses during periods of market turmoil, so it’s essential to develop a comprehensive financial plan that reflects your risk tolerance and investment time horizon before committing any capital to stocks.

Investing in stocks can help you diversify your overall portfolio, as stocks often perform differently than other asset classes, which helps reduce volatility. You can purchase stocks through a brokerage account, or you can invest in funds that provide exposure to various categories of stocks, such as large-cap U.S. equities, international equities or low-cost index funds. Many employer-sponsored retirement plans, such as 401(k) accounts, offer a wide range of diversified stock options through mutual funds or index ETFs.

There are two primary ways to earn returns from stocks: capital gains and dividends. Capital gains occur when you sell a stock for more than you paid for it. Typically, these profits are taxed at the same rate as ordinary income. Dividends are regular payments from a company to shareholders, which can supplement your income or serve as an additional source of revenue. Many companies pay dividends on a quarterly basis, though not all do.

Some investors purchase stocks in order to support companies they admire, such as socially responsible corporations that prioritize sustainability or other values. Others invest in stocks because they want to participate in the potential growth that a company’s products or services can bring. Many people also find that owning stock can give them a sense of pride and achievement, similar to the way that owning a home or car might.